Private ruling: Genuine redundancy payment
Date of advice: 17 April 2019
Published: June 2019
Ruling period: Year Ended 30 June 2019
Date scheme commenced: 1 July 2018

Ruling: Q1: Is any part of a lump sum payment of the amount received due to the termination of employment considered a genuine redundancy payment in accordance with section 83-175 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No

Relevant facts and circumstances: You commenced employment with (the Employer) in the 2007-08 income year. Your employment was terminated in the 2018-19 income year after you requested a voluntary redundancy as the Employer advised that the payment would be tax-free. The terms of your termination were set out in a Deed of Release (the Deed). Following your termination, the Employer filled your position with another staff member.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 83-175(1). | Income Tax Assessment Act 1997 section 83-170. Summary | The payment you received on the termination of your employment is not a genuine redundancy payment pursuant to section 83-175 of the ITAA 1997 | Detailed reasoning | Genuine redundancy payments | A payment made to an employee is a GRP if it satisfies all the criteria in section 83-175 of the ITAA 1997. | In accordance with subsection 83-175(1) of the ITAA 1997, a GRP is so much of a payment received by an employee who is dismissed from employment because the employee’s position is genuinely redundant and exceeds the amount that could reasonably be expected to be received by the employee in consequence of the voluntary termination of their employment. | The Commissioner of Taxation has issued Taxation Ruling TR 2009/1 Income tax: genuine redundancy payments (TR 2009/1), which outlines the requirements to be satisfied before any payment made to a person whose employment is terminated qualified for treatment as a GRP under section 83-175 of the ITAA 1997. | In discussing what constitutes a GRP for the purposes of subsection 83-175(1) of the ITAA 1997, paragraph 11 of TR 2009/2 states: | There are four necessary components within this requirement: | ● the payment must be received in consequence of an employee's termination; | ● the termination must involve the employee being dismissed from employment; | ● dismissal must be caused by the redundancy of the employee's position; and | ● the redundancy payment must be made genuinely because of a redundancy. | Paid ‘in consequence of’ the termination of employment | For a payment to be treated as an employment termination payment, the first condition that must be met is that the payment is made ‘ in consequence o f’ the termination of the Taxpayer’s employment. | The phrase ‘ in consequence o f’ is not defined in the ITAA 1997. However, the courts have interpreted the phrase in a number of cases. Taking into account the courts decisions on the meaning of the phrase, the Commissioner’s view on the meaning and application of the ‘in consequence of’ test are set out in Taxation Ruling TR 2003/13 (TR 2003/13). | While TR 2003/13 considered the meaning of the phrase ‘in consequence of’ in the context of the eligible termination payments, TR 2003/13 can still be relied upon as both the former provision under the Income Tax Assessment Act 1936 and the current provision under the ITAA 1997 both use the term ‘in consequence of’ in the same manner. In paragraph 5 of TR 2003/13 the Commissioner states: | … a payment is made in respect of a taxpayer in consequence of the termination of the employment of the taxpayer if the payment ‘follows as an effect or result of’ the termination. In other words, but for the termination of employment, the payment would not have been made to the taxpayer. | In your case, your employment was terminated because you had requested a redundancy. As a result of the termination, you received a payment totalling $17,340.99. If not for the termination, the payment would not have been made to you, Therefore, the payment was received by you in consequence of the termination of your employment. | Dismissal’ and ‘redundancy’ | The Commissioner’s view, as stated in paragraphs 18 and 25 of TR 2009/2 is that: | 18. Dismissal is a particular mode of employment termination. It requires a decision to terminate employment at the employer’s initiative without the consent of the employee. This stands in contrast to the employment that is terminated at the initiative of the employee… | 25. An employee’s position is redundant when an employer determines that it is superfluous to the employer’s needs and the employer does not want the position to be occupied by anyone. Accordingly, it is fundamentally the employer’s decision that a position is redundant. On occasion the decision may be unavoidable due to the circumstances surrounding the employer's operations. | It is clear from the facts that you voluntarily resigned from your employment. Furthermore, your position with the Employer was not considered to be superfluous to the Employer’s needs as it was filled by another person upon termination of your employment. Therefore, the termination of your employment was not caused by the redundancy of your position. | Consequently, the payment is not considered to be a genuine redundancy payment under subsection 83-175(1) of the ITAA 1997.