Private ruling: Genuine redundancy payments
Date of advice: 15 May 2019
Published: July 2019
Ruling period: The income year ended 30 June 20XX
Date scheme commenced: 1 July 20XX.

Ruling: Q1: Is any part of the payment made to the Employee on termination of employment exempt from tax as a genuine redundancy payment in accordance with section 83-175 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No.

Relevant facts and circumstances: The Employer employed the Employee after taking over the business in 20XX. A dispute arose between the Employer and the Employee arising from alleged misconduct on the part of the Employee. The Employer stood down the Employee in 20XX, pending a meeting to discuss these allegations. The Employee chose to exercise their right for a dispute resolution process through FairWork. At the dispute resolution process, the Employer and the Employee entered into an Agreement, as there was no viable way that the issues at hand could be worked through for the Employee to continue employment. Inter alia, it was agreed between the parties that the Employer would pay the Employee an amount in redundancy payments (the Payment). The settlement document (the Document) states, at paragraph 3.1: 3.1 The Respondent will pay the Applicant the amount ...in redundancy payments... The Employer paid the settlement amount as an ETP, given the role was not redundant and in fact had been subsequently filled on a permanent basis from mth/20XX, and on a temporary basis prior to that. The role remained the same and the new employee performed the same duties as the previous Employee. Therefore, the Employer held the view that this did not meet the criteria for a genuine redundancy.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 82-135 | 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: Summary The Payment paid by the Employer to the Employee on the termination of the employment is not a genuine redundancy payment for the purposes of section 83-175 of the ITAA 1997. Detailed reasoning A payment made to an employee is a genuine redundancy payment (GRP) if it satisfies all the criteria set out in section 83-175 of the ITAA 1997. In accordance with subsection 83-175(1) of the ITAA 1997, a genuine redundancy payment is: (a) so much of a payment received by an employee who is dismissed from employment because the employees position is genuinely redundant; (b) 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 dismissal. The Commissioner of Taxation has issued Taxation Ruling TR 2009/2 Income tax: genuine redundancy payments (TR 2009/2), which outlines 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. In discussing what constitutes a genuine redundancy payment in accordance with subsection 83-175(1) of the ITAA 1997, paragraph 11 of TR 2009/2 states: 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. Based on the information provided, it is accepted that the Payment was received in consequence of the termination of the Employee's employment, and that the Employee was dismissed from employment. However, a payment is classified as a genuine redundancy payment only upon meeting all of the requirements set under section 83-175 of the ITAA 1997 | Detailed Reasoning - Dismissal and Redundancy: The Commissioner has issued Taxation Ruling TR 2009/2, titled Income Tax: genuine redundancy payments which provides guidance on the factors to be considered in the interpretation of section 83-175 of the ITAA 1997. Paragraphs 24, 25 and 28 of TR 2009/2 provide the following in relation to the meaning of redundancy: 24. As is the case in determining if there is a dismissal, the reason for a dismissal is to be established in light of the facts and circumstances of each case. The redundancy of the relevant position must be the prevailing or most influential reason for the dismissal if there is more than one contributing cause. 25. An employee's position is redundant when an employer determines that it is superfluous to the employer's needs and the employer does not want the position to be occupied by anyone. Accordingly, it is fundamentally the employer's decision that a position is redundant. On occasion the decision may be unavoidable due to the circumstances surrounding the employer's operations. ... 28. A dismissal is not caused by redundancy where personal acts or default are the prevailing or most influential cause for the termination. For example, a person may be dismissed due to unsatisfactory performance or behaviour. In this case, the Employee's dismissal, and the subsequent receipt of the Payment, occurred as a result of a dispute between the Employee and the Employer over alleged misconduct. There is no suggestion that the work previously carried out by the Employee would no longer be required. Indeed, the position previously held by the Employee was filled following the dismissal, initially by a temporary employee and later on a permanent basis. It is not considered that the Employee was dismissed from the employment because the role with the Employer was made genuinely redundant. Therefore, subsection 83-175(1) of the ITAA 1997 has not been satisfied. The fact that the Payment may have been described as 'redundancy payments' on the settlement documentation does not change the character of the payment for taxation purposes. | Detailed Reasoning - Conclusion: In this case, as not all of the requirements under section 83-175 of the ITAA 1997 have been satisfied, the Payment is not a genuine redundancy payment.