Private ruling: Genuine redundancy - arrangement to employ
Date of advice: 13 January 2026
Published: 9 March 2026
Ruling period: Year ending 30 June 20XX

Ruling: Q1: Is the payment of a genuine redundancy payment under section 83-175 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No. | Q2: Is any part of the payment an employment termination payment (ETP) as defined in section 82-130 of the ITAA 1997? | A2: Yes.

Relevant facts and circumstances: You were employed by your employer when the workplace management contract was transferred to the new employer during the 20XX income year. ATO records show that you ceased employment with the employer and commenced employment with the new employer within a matter of days. During the 20XX income year you lodged a written application to your employer requesting redundancy pay. This matter was referred to the employer's legal area for consideration. Your employer determined you were entitled to redundancy pay. The payment was made 12 months after your termination date. Your employer has stated there was an arrangement in place for the new employer to offer continuing employment for all employees in their current positions, including you.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 82-130 | Income Tax Assessment Act 1997 section 82-135 | Income Tax Assessment Act 1997 section 83-175 | Income Tax Assessment Act 1997 section 995-1 We followed these ATO view documents | Taxation Ruling 2003/13 Income tax: eligible termination payments (ETP): payments made in consequence of the termination of any employment: meaning of the phrase 'in consequence of' (TR 2003/13) | Taxation Ruling TR 2009/2 Income tax: genuine redundancy payments (TR 2009/2)

Reasons for decision: Summary: Genuine redundancy payment A payment made to an employee is a genuine redundancy payment if it satisfies all the conditions set out in section 83-175 of the 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 and 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 the employee reached pension age; 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 ay 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. 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)). Paragraph 11 of Taxation Ruling TR 2009/2: Income tax: genuine redundancy payments (TR 2009/2), outlines the requirements to be satisfied under subsection 83-175(1) of the ITAA 1997. There are four necessary components within this requirement: • The payment being tested must be received in consequence of an employee's termination. • That termination must involve an employee being dismissed from employment. • That dismissal must be caused by the redundancy of the employee's position. • The redundancy payment must be made genuinely because of a redundancy. While the essential components of subsection 83-175(1) of the ITAA 1997 appear to have been satisfied in this case, there are further conditions that must be satisfied before the payment can be treated as a genuine redundancy. Conditions in subsections 83-175(2) and (3) of the ITAA 1997 require that: • the dismissed employee is not older than specified age limits • the termination is not at the end of a fixed period of employment • the actual amount paid is not greater than the amount that could reasonably be expected had the parties been dealing at arm's length, in the event that the employer and employee are in fact not dealing at arm's length in relation to the dismissal • there is no arrangement entered into between the employer and the employee or the employer and another entity to employ the dismissed employee after the termination (paragraph 83-175(2)(c)); and • the payment is not in lieu of superannuation benefits. The primary issue is whether, at the time of your dismissal, there was an arrangement between you and the employer, or between the employer and another party, to employ you after dismissal? An arrangement to employ an employee after his or her termination may prevent a dismissal giving rise to a genuine redundancy payment. An 'arrangement' in this context is defined in subsection 995-1(1) as: arrangement means any arrangement, agreement, understanding, promise or undertaking, whether express or implied, and whether or not enforceable (or intended to be enforceable) by legal proceedings. Paragraphs 307 to 309 of TR 2009/2 provide the Commissioner's view on an 'arrangement...to employ': 307. In the Commissioner's view, the phrase 'arrangement...to employ' is confined to common law employment relationships. The apparent purpose of paragraph 83-175(2)(c) is to limit access to concessional tax treatment where an employee is terminated but is certain of continuing remuneration in the future under a common law employment contract because of an arrangement to which the employer is a party. 308. For the condition in paragraph 83-175(2)(c) to fail, it is necessary for the employment arrangement to be entered into between either: • the employer and the employee; or • the employer and another entity. 309. Accordingly, if the employee has independently entered into an arrangement with another entity for that entity to employ him or her after the time of the dismissal from the original employer, the condition in paragraph 83-175(2)(c) will still be met. On the other hand, given the breadth of the meaning of 'arrangement', an implied understanding between two related companies at the time of an employee's dismissal with one of those companies to the effect that the employee will be employed at a later time with the other is sufficient for this condition not to be met. The new employer assumed management of the workplace and subsequently employed you. Your employment with the employer ceased during the 2023 income year, and you commenced immediately with the new employer. Your employer has stated there was an arrangement in place for the new employer to offer continuing employment for all workplace employees in their current positions, including you. Based on these facts, there was an understanding between the parties of an imminent employment offer, which would subsequently fall under the definition of an 'arrangement...to employ'. As an arrangement existed to employ you at the time of termination, paragraph 83-175(2)(c) of the ITAA 1997 is not satisfied. Therefore, the payment you received does not qualify as a genuine redundancy payment under section 83-175 of the ITAA 1997. | Detailed Reasoning - Employment termination payment: A payment is an ETP if it satisfies all the requirements in section 82-130 of the ITAA 1997 and is not specifically excluded under section 82-135 of the ITAA 1997. Subsection 82-130(1) of the ITAA 1997 states: A payment is an employment termination payment if: (a) it is received by you: i. in consequence of the termination of your employment; or ii. after another person's death, in consequence of the termination of the other person's employment; and (b) it is received no later than 12 months after the termination (but see subsection (4)); and (c) it is not a payment mentioned in section 82-135. Based on the information provided, paragraphs 82-130(1)(a) and (c) of the ITAA 1997 have been satisfied in relation to the payment. | Detailed Reasoning - Payment received no later than 12 months after termination: Paragraph 82-130(1)(b) of the ITAA 1997 requires that the payment must be received no later than 12 months after the termination of employment. However, subsection 82-130(4) of the ITAA 1997 says that paragraph 1(b) does not apply to you if: (a) you are covered by a determination under subsection (5) or (7); or (b) the payment is a *genuine redundancy payment or an *early termination payment Under subsection 82-130(5) of the ITAA 1997, the Commissioner may determine in writing, that paragraph 82-130(1)(b) does not apply to you if the Commissioner considers that the time between the employment termination and the payment is reasonable, having regard to the following: (a) the circumstances of the employment termination, including any dispute in relation to the termination; (b) the circumstances of the payment; (c) the circumstances of the person making the payment; (d) any other relevant circumstances. Your employment was terminated during the 2023 income year. The payment was made during the 2024 income year, which was more than 12 months after the termination. You lodged a formal claim for redundancy pay within 12 months of the termination of your employment. The delay in payment related to the time taken in processing your claim by the employer's legal department. After considering the circumstances of the termination, the payment, and the paying entity, the payment is exempt from the 12-month rule under paragraph 82-130(1)(b) of the ITAA 1997. As all conditions of subsection 82-130(1) of the ITAA 1997 have been satisfied, the payment is an ETP.