Private ruling: Genuine redundancy payment
Published: November 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Will any part of the employment termination payment received after age 65 contain a tax-free part of a genuine redundancy payment? Advice/Answer No

Relevant facts and circumstances: You were over 65 year of age in the 2012-13 income year. You commenced employment with the employer several years ago. Your substantive position was declared redundant in April 2013. You had a choice of accepting redundancy or electing redeployment. The redeployment was only available up to the end of the 2012-13 income year. You elected for redeployment. During your deployment period, you did not secure a new roll. As a result, your employment with the employer was terminated on a specific date in the 2012-13 income year. At this time you were over 65 years of age. A copy of the PAYG payment summary -employment termination payment in relation to the 2012-13 income year has been provided. The summary was prepared by the employer and shows: (i) payment was made on a specific date; (ii) the taxable component was a specific amount; and . (iii) tax withheld was in accordance with the withholding requirements

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 83-175 | Income Tax Assessment Act 1997 Subsection 83-175(1) | Income Tax Assessment Act 1997 Subsection 83-175(2) | Income Tax Assessment Act 1997 Paragraph 83-175(2)(a). | Income Tax Assessment Act 1997 subparagraph 83-175(2)(a)(i) | Income Tax Assessment Act 1997 Paragraph 83-175(2)(b). | Income Tax Assessment Act 1997 Paragraph 83-175(2)(c). | Income Tax Assessment Act 1997 Subsection 83-175(3) | Income Tax Assessment Act 1997 Subsection 83-175(4) | Age Discrimination Act 2004 Section 40

Reasons for decision: Summary: The employment termination payment you received from the employer will not be a genuine redundancy payment as you were over 65 years of age when your employment was terminated. Your employer has withheld the correct amount of tax from your employment termination payment. | Detailed Reasoning - Genuine redundancy payment: 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 employee's 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)). The Commissioner has issued Taxation Ruling TR 2009/2 which outlines the Commissioner's view of the requirements to be satisfied for a payment to qualify as a genuine redundancy payment under section 83-175 of the ITAA 1997. At paragraphs 34 and 35 of TR 2009/2 it refers to the age-based limits which state: 34. Under paragraph 83-175(2)(a), an employee must be less than 65 years old at the time of dismissal for a redundancy payment to qualify as a genuine redundancy payment. 35 However, if the employment of a particular employee would have otherwise terminated at a younger age than 65, the employee must be dismissed before that time. This younger age becomes the employee's age-based limit in these circumstances Therefore, under subparagraph 83-175(2)(a)(i) of the ITAA 1997 your employment must be terminated before you turn 65 years of age. As your employment with the employer was terminated in the 2012-13 income year, after you turned 65 years of age, you do not meet the condition under subsection 83-175(2) of the ITAA 1997. All conditions set out in section 83-175 of the ITAA 1997 must be met 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 will not be a genuine redundancy payment under section 83-175 of the ITAA 1997. Accordingly, the employment termination payment you received from the employer in the 2012-13 income year is not a genuine redundancy payment under section 83-175 of the ITAA 1997. Your employer has correctly withheld the tax from your employment termination payment. Please note that there are no age discrimination issues 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.