Private ruling: Employment Termination Payments
Date of advice: 31 July 2018
Published: September 2018
Ruling period: Year ended 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Q1: Is the payment received from the Redundancy Trust (Relevant Electrical Redundancy Trust) considered a genuine redundancy payment under section 83-175 of the Income Tax Assessment Act 1997 ? | A1: No

Relevant facts and circumstances: ● The Taxpayer was a member of a Redundancy Trust (Relevant Electrical Redundancy Trust) ● The Trust is an Approved Worker Entitlement Trust that accepts redundancy contributions paid by participating employers for their employees ● The Taxpayer was employed by the company. ● The company issued a document to all field staff which declared redundancies. Clause 13 of the company’s Enterprise Agreement addresses Redundancy and Severance Payments: ● The Taxpayer was made redundant. ● the Taxpayer received the second portion of their redundancy component from the Redundancy Trust. The Redundancy Trust Annual Report for the year ended 30 June 2017 states: If you are made redundant or you terminate your employment you can claim your account balance by completing a member benefit claim form … The Trust Redundancy Benefit Claim form for states: Upon redundancy the employee is legally entitled to receive a redundancy payment, as prescribed by the relevant award or enterprise agreement (whichever is applicable) or the amount that the employer has contributed into the Redundancy Trust, whichever is the greater amount. “Redundancy” means the termination or cessation of employment of an employee for any reason. “Redundancy payments” are those paid by an employer that an employee is legally entitled to receive on termination as prescribed by the relevant award or enterprise agreement, or the amount the employer has contributed to the Redundancy Trust whichever is greater. The Redundancy Trust employer booklet, obtained from the relevant website, states, at Page 8: All payments made by the Redundancy Trust to Members are classified as Employment Termination Payments (ETP's) under the Income Tax Act and are therefore taxed accordingly.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 83-175. | Income Tax Assessment Act 1997 subsection 83-175(1).

Reasons for decision: Summary: The amount received by the Taxpayer from Redundancy Trust in consequence of their employment being terminated by reason of redundancy is not considered to be a genuine redundancy payment for the purposes of section 83-175 of the Income Tax Assessment Act 1997 (ITAA 1997) because it did not exceed the amount that they could have reasonably expected to receive had they voluntarily resigned from their employment at that time. | Detailed Reasoning - Detailed reasoning: A payment will qualify as a genuine redundancy payment if all the requirements under section 83-175 of the ITAA 1997 are satisfied. According to subsection 83-175(1) of the ITAA 1997, 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 have been 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 Commissioner has issued Taxation Ruling TR 2009/2 Income Tax: genuine redundancy payments (TR 2009/2), which provides guidance on the factors to be considered in the interpretation of section 83-175 of the ITAA 1997. Paragraph 11 of TR 2009/2 specifies four necessary components within the requirements under subsection 83-175(1) of the ITAA 1997: ● The payment being tested must be received in consequence of an employee's termination . ● That termination must involve the 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. The information provided indicates that, in this case, the above components have been met and the termination of the Taxpayer’s employment was the result of genuine redundancy. However, while it is accepted that the Taxpayer was dismissed by the Employer because their 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 the Taxpayer would have received had they voluntarily resigned from their employment at the time of the dismissal. Based on the information available, the payment received by the Taxpayer from the Redundancy Trust after their employment was terminated by reason of redundancy is not greater that the benefit they would have received had they terminated their employment voluntarily at that time. That is, the Taxpayer would have received the same payment if their employment was terminated for any reason. Consequently, subsection 83-175(1) of the ITAA 1997 has not been satisfied in the Taxpayer’s case. Therefore, the payment received from the Redundancy Trust is not a genuine redundancy payment as defined in section 83-175 of the ITAA 1997.