Private ruling: Genuine redundancy payments.
Published: December 2011
Ruling period: Year ended 30 June 2011.
Date scheme commenced: 1 July 2010.

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

Relevant facts and circumstances: You are over 65 years of age. You commenced employment with an entity (Entity 1) in 1985. Prior to your redundancy, you had the opportunity to apply for a redundancy under a Voluntary Redundancy Program. You did not apply for this. Although you did not apply for the voluntary redundancy, in the 2009-10 income year your position was made redundant due to a restructure in Entity 1. The initial redundancy payment offer was incorrectly stated as tax free. Subsequently, because you were over 65 years of age, the redundancy payment offer was reduced by the 15% withholding tax that applies to those who are in receipt of an employment termination payment and are over 65 years of age. You state that you made a number of enquiries with the ATO who did not advise you that genuine redundancy payments could not be made to people over 65 years of age. You believe you have been financially discriminated against based on your age.

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 as not all of the conditions set out in section 83-175 of the Income Tax Assessment Act 1997 (ITAA 1997) have been satisfied. | Detailed Reasoning - Detailed reasoning: A payment made to an employee, after 30 June 2007, 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. 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 Entity 1 was terminated during the 2009-10 income year. You were over 65 years of age when your employment was terminated and as such 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 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 Entity 1 is not a genuine redundancy payment under section 83-175 of the ITAA 1997. 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.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.