Private ruling: Employment termination payment
Published: July 2012
Ruling period: 2011-12 income year.
Date scheme commenced: 1 July 2011

Ruling: Q1: Will the taxpayer lose tax concessions for genuine redundancy if subsequently re-employed by the same employer? | A1: No.

Relevant facts and circumstances: Your client was employed by the Employer. A 'certificate of service' from the Employer certified: · Date of commencement. · Date of separation. · Last position held. · Reason for separation. A 'notice of retrenchment' from the Employer states that another suitable role within the company was unable to be found, and as a result his employment will be terminated by way of retrenchment. You advise there was no agreement for your client to be re-employed following the termination of employment. Your client signed a Deed of Release (the Deed) between the Employer and themself. Your client approached the Employer for a position that is not the same as previously held. At this stage there is no agreed start date as there is no job offer. However there may be a formal job offer in the future. The retrenched position is different to the new proposed position. Both positions are located in the same head office. You state that the Employer's normal policy is not to re-hire a retrenched employee within two years from retrenchment. However, the employer has indicated the position is available to your client.

Relevant legislative provisions: Income Tax Assessment Act 1936 Section 27F. | Income Tax Assessment Act 1997 Section 83-175. | Income Tax Assessment Act 1997 Subsection 83-175(1). | Income Tax Assessment Act 1997 Section 995-1.

Reasons for decision: Summary: At the time of termination of employment there was no agreement made to re-employ the taxpayer. Therefore, the tax concessions for genuine redundancy will not be lost if the taxpayer is subsequently re-employed by the same employer. | Detailed Reasoning - Detailed reasoning: A payment made to an employee is a genuine redundancy payment if it satisfies all criteria 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)). Section 82-135 of the ITAA 1997 lists payments that are not employment termination payments. Paragraph 82-135(e) provides that the part of a genuine redundancy payment worked out under section 83-170 is not an employment termination payment. | Detailed Reasoning - The requirement under paragraph 83-175(2)(c) of the ITAA 1997: As noted previously, paragraph 83-175(2)(c) of the ITAA 1997 requires that 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 the dismissal. From the facts provided, at the time of retrenchment from the Employer, there was no evidence of re-employment by the Employer or any re-employment arrangement with another entity, so it is accepted that your client has satisfied the requirement under paragraph 83-175(2)(c) of the ITAA 1997. This continues to be the case even if your client is subsequently re-employed by his former employer. | Detailed Reasoning - Conclusion: A payment made to an employee is a genuine redundancy payment if it satisfies all criteria set out in section 83-175 of the ITAA 1997. As subsection 82-175(2)(c) has been satisfied, the taxpayer will not lose tax concessions on genuine redundancy if he is subsequently re-employed by the same employer.

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