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Payments to Obtain Release from Employment Contracts

9.67. It is not uncommon for scholarships and cadetships under which a person undertakes some form of training to provide that he must enter or continue in the employment of the organisation giving him the scholarship or cadetship for a period of years after completing his training. If he does not fulfil this condition, he may be required to pay an amount to the organisation to obtain his release. Under the present law there does not appear to be any basis on which a deduction of an amount so paid might be claimed: it would be regarded as a capital cost of obtaining freedom of action to enter on other employment.

9.68. There is a general principle appropriate at least to business income that moneys received are not income if, under the terms of the receipt, there are outstanding conditions yet to be fulfilled; the moneys will become income only as the conditions are fulfilled. If this principle were applied to moneys received under the scholarship or cadetship, it would bring about a result somewhat different from a deduction of the amount paid to obtain release. Receipts under the scholarship or cadetship would cease to be taxed as received but would become income during the years of service following training, and this would mean a bunching of income which would not be welcomed by the former trainee. The Committee would not, in any event, favour the application of such a principle in the present context.

9.69. If the law is to make any allowance in respect of payment under an employment contract, it will have to be by way of a special provision permitting a deduction of the whole or some part of the payment at the time it is made. However, the Committee does not favour such special provisions.

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