Private ruling: Genuine redundancy
Date of advice: 10 July 2018
Published: September 2018
Ruling period: Income year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is an Early End of Contract payment you received from your former employer a genuine redundancy payment for the purposes of section 83-175 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes

Relevant facts and circumstances: You commenced employment with your former employer (the Employer) in 20XX. Your employment contract stipulated that your employment with the Employer was for a fixed-term commencing 20XX through and up to a specified date in 20XX (the End Date). Due to you beginning a new role interstate, the contract was replaced by another fixed term arrangement to cover the period to the End Date. In a letter dated 20XX, the Employer advised you that your employment contract was coming to an end earlier than stipulated in your contract of employment ‘due to the role no longer being required because of a change of operational requirements’. Subsequently, your employment with the Employer was terminated in 20XX. You received a termination payment from the Employer which included an Early End of Contract payment amount and Payment in Lieu of Notice amount (collectively, the Payment). The Payment was not a payment in lieu of superannuation benefits to which you may have been entitled to. The termination of your employment was at arm’s length. At the time of the termination, there was no arrangement between the Employer and you, or between the Employer and another person, to employ you after the termination. At the time of the payment, you were less than 65 years of age.

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 Subsection 83-175(3) | Income Tax Assessment Act 1997 Subsection 83-175(4)

Reasons for decision: Summary: The Payment received from the Employer on the termination of your employment is a genuine redundancy payment (GRP) for the purposes of section 83-175 of the ITAA 1997. | Detailed Reasoning - Genuine redundancy payments: In accordance with subsection 83-175 (1) of the ITAA 1997, a GRP is so much of a payment that: ● is received by an employee who is dismissed from employment because the employee’s 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 their employment at the time of the dismissal. The requirements to be satisfied before any payment made to a person whose employment is terminated qualifies for treatment as a GRP under section 83-175 of the ITAA 1997 are discussed in Taxation Ruling TR 2009/2 Income tax: genuine redundancy payments (TR 2009/2). With regard to the first requirement set out in subsection 83-175 (1) of the ITAA 1997, at paragraph 11 of TR 2009/2, the Commissioner of Taxation (the Commissioner) considers that there are four necessary components within this requirement: ● the payment must be received in consequence of an employee's termination; ● the termination must involve the employee being dismissed from employment; ● dismissal must be caused by the redundancy of the employee's position; and ● the redundancy payment must be made genuinely because of a redundancy. Based on the information provided, it is accepted that the above components of subsection 83-175 (1) of the ITAA 1997 have been satisfied in your case. However, while it is accepted that you were dismissed from your employment with the Employer because your position was genuinely redundant, subsection 83-175 (1) of the ITAA 1997 also requires that the payment received in consequence of redundancy exceeds the amount that you would have received had you voluntarily resigned from your employment. There is nothing in your employment contract that indicates that you would have received the Payment if you had voluntarily terminated your employment. Therefore, the Payment exceeds the amount that you could have reasonably expected to receive in consequence of the voluntary termination of your employment. | Detailed Reasoning - Further conditions for a genuine redundancy payment: In addition to the basic requirements for a GRP found in subsection 83-175(1) of the ITAA 1997, the further conditions for GRP treatment in subsections 83-175(2) and (3) of the ITAA 1997 require that: ● the payment must be made before a person turns 65 or an earlier mandatory age; ● the termination is not at the end of a fixed period of employment; ● in the event that the employer and employee are not dealing at arm's length in relation to the dismissal, the actual amount that was paid is not greater than the amount that could reasonably be expected to be paid had the parties been dealing at arm’s length; ● there was no arrangement for re-employment with the employer or a related party after the termination date; and ● the payment was not in lieu of superannuation benefits. At the time the Payment was made to you, you were under 65 years and no earlier mandatory age of termination applied, therefore the age base requirement has been met in your case. Your employment was for a specified term. However, your employment was terminated before the End Date of the contract. Consequently, it is considered that termination, in this case, did not occur at the end of a fixed period of employment. Based on the above and the fact that you and the Employer were dealing with each other at arm’s length; the Payment was not in lieu of superannuation benefits; and there was no arrangement to employ you after the termination, the Payment is a GRP for the purposes of section 83-175 of the ITAA 1997.