Private ruling: Genuine redundancy
Published: January 2014
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012.

Ruling: Q1: Does the payment made as a result of your redundancy qualify as a genuine redundancy payment where you are over 65 years old at the time of the termination of employment? | A1: No

Relevant facts and circumstances: You are over 65 years old. You were employed by an employer (the Employer) from the 2006-07 income year to your cessation date during the 2012-13 income year, following your position being made redundant. You were initially provided with a termination payment calculation that included a tax-free component to reflect your payment was made for genuine redundancy. However, your final termination payment calculation had revised the tax-free component to $nil as you were over 65 years old when your employment was terminated. You have advised that you are entitled to the tax-free component because your position was made genuinely redundant. You have stated that the age requirement pertaining to genuine redundancy constitutes age discrimination.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 83-175 | Income Tax Assessment Act 1997 Paragraph 83-175(2)(a). | Age Discrimination Act 2004 Section 40

Reasons for decision: Summary: The employment termination payment you received does not qualify as a genuine redundancy payment as not all of the conditions have been satisfied. | Detailed Reasoning - Detailed reasoning: A payment made to an employee is a genuine redundancy payment (GRP) if it satisfies all the conditions set out in section 83-175 of the Income Tax Assessment Act 1997 (ITAA 1997). This section states: (1) A genuine redundancy payment is so much of a payment received by an employee who is dismissed from employment because the employees position is genuinely redundant as exceeds the amount that could reasonably be expected to be received by the employee in consequence of the voluntary termination of his or her employment at the time of dismissal. (2) A genuine redundancy payment must satisfy the following conditions: (a) the employee is dismissed before the earlier of the following: (i) the day he or she turned 65; (ii) if the employees employment would have terminated when he or she reached a particular age or completed a particular period of service the day he or she would reach the age or complete the period of service (as the case may be); (b) if the dismissal was not at arms length the payment does not exceed the amount that could reasonably be expected to be made if the dismissal were at arms length; (c) at the time of the dismissal, there was no arrangement between the employee and the employer, or between the employer and another person, to employ the employee after dismissal. (3) However, a genuine redundancy payment does not include any part of a payment that was received by the employee in lieu of superannuation benefits to which the employee may have become entitled at the time the payment was received or at a later time. | Detailed Reasoning - Payments not covered: (4) A payment is not a genuine redundancy payment if it is a payment mentioned in section 82-135 (apart from paragraph 82-135(e)). Under subparagraph 83-175(2)(a)(i) of the ITAA 1997 your employment must be terminated before you turn 65 years of age. Your employment with your employer was terminated during the 2012-13 income year. As you were over 65 years old when your employment was terminated you do not meet the condition under subsection 83-175(2) of the ITAA 1997. As mentioned all conditions set out in section 83-175 of the ITAA 1997 must be satisfied for a payment to be a genuine redundancy payment. As you have not met one of the conditions under section 83-175 of the ITAA 1997, it is not necessary to discuss whether you meet the other conditions under section 83-175 of the ITAA 1997. Therefore the payment you received from the Employer is not a genuine redundancy payment under section 83-175 of the ITAA 1997. As your termination payment does not qualify as a genuine redundancy payment there is no tax-free element. Instead, the entire amount is considered a taxable component and therefore is included as taxable income in your income tax return. Further, as you were over your preservation age at the time the termination amount was paid, the amount is taxed concessionally at 15% plus 1.5% medicare levy. With reference to your final termination payment calculation, the Employer has withheld the correct amount of tax. Please note that there is no age discrimination in this case. Section 40 of Division 4 (General Exemptions) of Part 4 (Unlawful Age Discrimination) of the Age Discrimination Act 2004 states: This part does not make unlawful anything done by a person in direct compliance with a taxation law (within the meaning of the Income Tax Assessment Act 1997 ). Further, the Explanatory Memorandum to the Age Discrimination Bill 2003 (which was enacted as the Age Discrimination Act 2004) states in relation to section 40: Taxation: Distinctions based on age can legitimately feature in a number of ways in taxation legislation including rebates and other concessions. To ensure this flexibility is retained it is appropriate that taxation legislation laws be exempt.