Private ruling: PAYG Withholding - payment to member fund
Date of advice: 18 September 2024
Published: 28 October 2024
Ruling period: XX January 20XX to XX June 20XX
Date scheme commenced: XX January 20XX

Ruling: Q1: Is the Trustee required to withhold pay as you go (PAYG) tax from severance payments (Payments) made to Voluntary Termination Account (VTA) workers (VTA Workers), under section 12-85 of Schedule 1 to the Taxation Administration Act 1953 (TAA 1953)? | A1: Yes. The Trustee is required to withhold PAYG tax from Payments made to VTA Workers, under section 12-85 of Schedule 1 to the TAA 1953, on the basis that those payments are employment termination payments (ETPs) under section 82-130 of the Income Tax Assessment Act 1997 (ITAA 1997). | Q2: Is the Trustee required to withhold PAYG tax from the Prescribed Amount component, and any Additional Amount component, of Payments made to Default Termination Account (DTA) workers (DTA Workers), under section 12-85 of Schedule 1 to the TAA 1953, due to termination of employment for reasons other than genuine redundancy? | A2: Yes. The Trustee is required to withhold PAYG tax from both the Prescribed Amount component, and any Additional Amount component, of Payments made to DTA Workers, under section 12-85 of Schedule 1 to the TAA 1953, on the basis that those payments are ETPs under section 82-130 of the ITAA 1997. | Q3: Is the Trustee required to withhold PAYG tax from the Prescribed Amount component of Payments made to DTA Workers (under pension age), under section 12-85 of Schedule 1 to the TAA 1953, due to the termination of employment by reason of genuine redundancy, up to the 'cap' amount worked out using the formula provided in subsection 83-170(3) of the ITAA 1997? | A3: No. The Trustee is not required to withhold PAYG tax from the Prescribed Amount component of Payments made to DTA Workers (under pension age), under section 12-85 of Schedule 1 to the TAA 1953, up to the 'cap' amount worked out using the formula provided in subsection 83-170(3) of the ITAA 1997. | Q4: Is the Trustee required to withhold PAYG tax from the Prescribed Amount component of Payments made to DTA Workers (under pension age), undersection 12-85 of Schedule 1 to the TAA 1953, due to the termination of employment by reason of genuine redundancy, to the extent that the Payment exceeds the cap amount worked out using the formula provided in subsection 83-170(3) of the ITAA 1997? | A4: Yes. The Trustee is required to withhold PAYG tax from the Prescribed Amount component of Payments made to DTA Workers (under pension age), under section 12-85 of Schedule 1 to the TAA 1953, to the extent that the Payment exceeds the cap, on the basis that it is an ETP under section 82-130 of the ITAA 1997. | Q6: Is the Trustee required to withhold PAYG tax from the Prescribed Amount component, and any Additional Amount component, of Payments made to DTA Workers (of pension age), under section 12-85 of Schedule 1 to the TAA 1953, due to the termination of employment by reason of a genuine redundancy? Answer: 6 Yes. The Trustee is required to withhold PAYG tax from both the Prescribed Amount component, and any Additional Amount component, of Payments made to DTA Workers (of pension age), under section 12-85 of Schedule 1 to the TAA 1953, due to the termination of employment by reason of a genuine redundancy, on the basis that the payment is an ETP under section 82-130 of the ITAA 1997.

Relevant facts and circumstances: You have lodged an application for a private ruling on behalf of your client (the Trustee), in relation to the requirement (or otherwise) to withhold tax from certain payments made to workers who leave or change their employment under certain circumstances. You have made the following statements in relation to the Scheme: § The Scheme was settled on XX XX XXXX by trust deed (the Deed). § The Deed was executed by the Trustee and the Sponsors. § The Deed has been amended from time to time. § The Scheme involves employers (Employers) within the relevant industry becoming members (Members) of the Scheme. § The Members are required to make weekly contributions to the Trustee in respect of their workers (Workers) pursuant to obligations under relevant enterprise agreements. § The Trustee credits these contributions to an account in the name of each of the relevant Workers. § When a Worker's employment is terminated, the Trustee may be required to make a severance payment to the Worker (Severance Payment) subject to the Worker lodging a claim with the Trustee and the Trustee being satisfied that the Worker has met the relevant eligibility criteria prescribed in the Deed. The Deed contains the following relevant information, in relation to the above statements made: § The Sponsors have agreed to establish the Scheme to provide benefits to Workers who leave or change their employment in circumstances set out in this Deed. § To achieve the purpose of the Scheme, Employers will become Members of the Scheme and will make Contributions in respect of Workers. § Each Member shall make Contributions to the Scheme in respect of each of the Member's Workers. § All Contributions made by a Member to the Scheme become part of the Trust Fund. § The Trustee shall credit to the Worker's Account of each Worker each Contribution made in respect of him or her pursuant to this Deed. § The Trustee shall...debit from the Worker's Account of each Worker...any Severance Payment or other benefit paid from the Worker's Account in accordance with this Deed. § The Trust Fund shall be maintained exclusively for making Severance Payments to Workers in accordance with this Deed. § The Trustee's liability to make any Severance Payment to a Worker shall be limited to the amount standing to the credit of the relevant Worker's Account at the date on which the liability arises. You have advised that the Trustee proposes to make certain amendments to the Deed, in order to vary the Scheme's operating model, including changing the conditions for eligibility that must be met for a Worker to receive a Severance Payment from the Scheme. You have advised that, as a result of the proposed amendments: Upon an account being opened with the Scheme in the name of a Worker, the Worker will be designated as a 'Default Termination Account Worker' or 'DTA Worker'. All existing account holders will also be designated as DTA Workers. DTA Workers will be permitted to receive a severance payment in the following circumstances, under Clauses X and X.X of the Trust Deed: § DTA Workers who have not yet reached their 'Pension Age' will be entitled to receive a Severance Payment in consequence of the termination of their employment for any reason, excluding the voluntary termination of their employment; and § DTA Workers who have reached Pension Age, will be entitled to receive a Severance Payment in consequence of the termination of their employment for any reason. A DTA Worker that satisfies the above-mentioned eligibility criteria will be entitled to Severance Payments in the following Prescribed Amounts: For those Workers who have not yet reached Pension Age: § If their employment is terminated by reason of a genuine redundancy - a Severance Payment equal to the tax-free amount calculated under subsection 83-175(3) of the ITAA 1997. § If their employment is terminated for any other reason, other than voluntary termination - a severance payment of $XXX. For those Workers who have reached Pension Age at the date of their dismissal - a severance payment of $XXX. DTA Workers will be permitted to make an irrevocable election to become a 'Voluntary Termination Account Worker' or 'VTA Worker' under the Trust Deed. VTA Workers will only be permitted to receive a Severance Payment in consequence of the voluntary termination of their employment, including by resignation or retirement, or due to death or Permanent Incapacity (as defined) under the Trust Deed. A VTA Worker that satisfies the above-mentioned eligibility criteria would be entitled to a Severance Payment up to the entire amount standing to their credit in their Worker Account, at the Trustee's discretion, under the Trust Deed (the 'Prescribed Amount' for VTA Workers). A DTA Worker or a VTA Worker whose employment is terminated may also be entitled to additional payments, provided there is still an amount standing to their credit in their Worker's Account, under the Trust Deed. Those conditions are: § The Severance Payment is payable upon the Worker's Retirement, death, or Permanent Incapacity (as defined); or § The Worker has remained unemployed for four consecutive weeks commencing on the day after the termination of their employment; or § The Worker has ceased to be employed either in the relevant industry or by a member of the Scheme or has been promoted to an above-award position and remained in that position, for thirty-nine consecutive weeks commencing on the day after the termination of their employment. You have submitted that, based on the proposed amendments being given effect, a Severance Payment made to a Worker (DTA or VTA) would be taxable to the Worker as an employment termination payment, except to the extent it represents the part of a genuine redundancy payment worked out under section 83-170 of the ITAA 1997, as follows: § A Severance Payment made to a VTA Worker under Clause X.X of the Trust Deed, is taxable to the VTA Worker as an ETP under section 82-130 of the ITAA 1997. § A Severance Payment made to a DTA Worker under Clause X.X of the Trust Deed for reasons other than a genuine redundancy, is taxable to the DTA Worker as an ETP under section 82-130 of the ITAA 1997. § Where a Severance Payment is made to a DTA Worker under Clause X.X of the Trust Deed due to the termination of their employment by reason of a genuine redundancy. If the DTA Worker's employment is terminated by reason of a genuine redundancy before they reach their Pension Age: § The Prescribed Amount component of the Severance Payment up to the 'cap' amount worked out using the formula provided in subsection 83-170(3) of the ITAA 1997 is non-assessable non-exempt (NANE) income and is not taxable to the DTA Worker. § To the extent that the Prescribed Amount component exceeds that cap, the excess amount is taxable to the DTA worker as an ETP under section 82-130 of the ITAA 1997. § Any Additional Amount component of the Severance Payment is taxable to the DTA Worker as an ETP under section 82-130 of the ITAA 1997. If the DTA Worker has reached their Pension Age by the date their employment is terminated by reason of a genuine redundancy, the Prescribed Amount component and any Additional Amount component of the Severance Payment is taxable to the DTA Worker as an ETP under section 82-130 of the ITAA 1997. Assumptions The Trust Deed will be amended by a deed of variation substantially in the form provided. All severance payments are received by the relevant persons within 12 months of the relevant employment termination event, or within a longer period as permitted by the Commissioner pursuant to any determination that the Commissioner may make. The Trustee will, before making a severance payment, receive sufficient evidence to satisfy itself on a reasonable basis of the Worker's age and that their employment has been terminated in the manner claimed. This includes where the Worker is claiming a severance payment from the Scheme for the termination of their employment due to a genuine redundancy. The Worker and their employer dealt at arm's length in relation to the termination of the Worker's employment, or otherwise the severance payment does not exceed the amount that could reasonably be expected to be made if the termination was at arm's length. There is no agreement or arrangement under which the relevant Worker's employment would be terminated when they reached a particular age or completed a particular period of service, or to employ the Worker after the termination of their employment. The enterprise agreement under which the Worker is employed does not entitle the Workers to any payments upon the voluntary termination of their employment, other than, and in addition to, an entitlement to a payment in respect of a notice period and/or the payment of accrued unpaid entitlements (for example, accrued annual leave).

Relevant legislative provisions: Income Tax Assessment Act 1997 section 82-130 | Income Tax Assessment Act 1997 subsection 82-130(1) | Income Tax Assessment Act 1997 paragraph 82-130(1)(b) | Income Tax Assessment Act 1997 subsection 82-130(4) | Income Tax Assessment Act 1997 subsection 82-130(5) | Income Tax Assessment Act 1997 subsection 82-130(7) | Income Tax Assessment Act 1997 section 83-170 | Income Tax Assessment Act 1997 subsection 83-170 (2) | Income Tax Assessment Act 1997 subsection 83-170(3) | 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 paragraph 83-175(2)(a) | Income Tax Assessment Act 1997 subparagraph 83-175(2)(a)(ii) | Income Tax Assessment Act 1997 paragraph 83-175(2)(c) | Income Tax Assessment Act 1997 subsection 83-175(3) | Income Tax Assessment Act 1997 subsection 83-175(4) | Income Tax Assessment Act 1997 section 995-1 | Taxation Administration Act 1953 section 12-85 of Schedule 1 ATO view | ETP Determination 2019/1 Income Tax: Employment Termination Payments Redundancy Trusts (12 month rule) Determination 2019 | Taxation Ruling TR 2003/13 Income tax: employment termination payments (ETP): payments made in consequence of the termination of any employment: meaning of the phrase 'in consequence of" | Taxation Ruling TR 2009/2 Income tax: genuine redundancy payments | Case law | Reseck v. Federal Commissioner of Taxation (1975) 49 ALJR 370

Reasons for decision: Summary: The Trustee is required to withhold PAYG tax from the following payments, on the basis that they are ETPs: § payments made to VTA Workers § payments of both Prescribed Amount components and Additional Amount components, made to DTA Workers, where the termination is for a reason other than a genuine redundancy § payments of Prescribed Amount components in excess of the cap, made to DTA Workers under pension age, where the termination is due to genuine redundancy § payments of Additional Amount components, made to DTA Workers under pension age, where the termination is for a reason other than genuine redundancy § payments of both Prescribed Amount components and Additional Amount components, made to DTA Workers of pension age, where the termination is for a reason other than genuine redundancy The Trustee is not required to withhold PAYG tax from the Prescribed Amount component of payments made to DTA Workers (under pension age), where that payment is made due to genuine redundancy, up to the 'cap' amount worked out using the formula provided in subsection 83-170(3) of the ITAA 1997. | Detailed Reasoning - Employment termination payment: Section 12-85 of Schedule 1 to the Taxation Administration Act 1953 (TAA 1953) states that an entity must withhold an amount from a payment it makes to an individual, where that payment is an employment termination payment, or would be one except that it is received more than 12 months after the termination of employment. Section 995-1 of the ITAA 1997 states that: employment termination payment has the meaning given by section 82-130 of the ITAA 1997. Subsection 82-130(1) of the ITAA 1997 states that: A payment is an employment termination payment if: (a) it is received by you: (i) in consequence of the termination of your employment; or (ii) after another person's death, in consequence of the termination of the other person's employment; and (b) it is received no later than 12 months after that termination (but see subsection (4)); and (c) it is not a payment mentioned in section 82-135. In order for a payment to constitute an employment termination payment, all the conditions in section 82-130 of the ITAA 1997 need to be satisfied. Failure to satisfy any of the conditions will result in the payments not being considered employment termination payments. Furthermore, any termination payments received outside of the 12 months are taxed as ordinary income at marginal tax rates, unless the taxpayer is covered by a determination exempting them from the 12 month rule. | Detailed Reasoning - Payment received in consequence of the termination of employment: The phrase 'in consequence of' is not defined in the ITAA 1997. However, the courts have interpreted the phrase in a number of cases. The High Court considered the expression 'in consequence of the termination of any employment' in Reseck v. Federal Commissioner of Taxation (1975) 49 ALJR 370 (Reseck). Justice Gibb in Reseck interpreted the meaning of the phrase as [emphasis added]: Within the ordinary meaning of the words, a sum is paid in consequence of the termination of employment when the payment follows as an effect or result of the termination ...It is not in my opinion necessary that the termination of the services should be the dominant cause of the payment...In the present case the allowance was paid in consequence of a number of circumstances, including the fact that the taxpayer's service had been satisfactory and that the industrial agreements provided for the payment, but it was none the less paid in consequence of the termination of the taxpayer's employment. Taking into account the courts' decisions on the meaning of the phrase, the Commissioner's view on the meaning and application of the 'in consequence of' test is set out in Taxation Ruling 2003/13 Income tax: employment termination payments (ETP): payments made in consequence of the termination of any employment: meaning of the phrase 'in consequence of' (TR 2003/13). Paragraphs 5 and 6 of TR 2003/13 state that: 5....the Commissioner considers that a payment is received by a taxpayer in consequence of the termination of the taxpayer's employment if the payment 'follows as an effect or result of' the termination. In other words, but for the termination of employment, the payment would not have been received by the taxpayer. 6.The phrase requires a causal connection between the termination and the payment, although the termination need not be the dominant cause of the payment. The question of whether a payment is received in consequence of the termination of employment will be determined by the relevant facts and circumstances of each case. | Detailed Reasoning - Payments of prescribed amount components: Under Clause X.X of the Deed, upon the occurrence of a Severance Event, a Worker (either DTA or VTA) (or a person claiming through or under such a Worker), will be entitled to a Severance Payment (the Payment) calculated in accordance with Clause X.X, which sets out the relevant Prescribed Amounts. It is clear from the wording of the proposed amendments to the Deed, that the entitlement to the Payment (of a Prescribed Amount) crystallises only upon the occurrence of the relevant Severance Event. The Deed defines a Severance Event as any of the following: § For DTA Workers - termination of employment for any reason, excluding voluntary termination prior to Pension Age § For VTA Workers - voluntary termination of employment, or termination due to death or Permanent Incapacity It is clear from the above that any Severance Event represents the termination of employment of the relevant Worker. There is no entitlement to a Payment without the preceding occurrence of a Severance Event. In other words, but for the termination of their employment, the Worker would have no entitlement to a Severance Payment from the Scheme, as a Severance Event would not have occurred: the termination of the Worker's employment is the necessary precondition for the Payment to be made or received. As such, there exists a causal connection between the termination of employment and the receipt of the Payment by the Worker. As such, Payments made to Workers are received by those Workers 'in consequence of' the termination of their employment. | Detailed Reasoning - Payments of additional amount components: As can be seen from the Deed, the Prescribed Amount for VTA Workers will be the entire amount standing to their credit in their Worker's Account, or such other amount as is determined by the Trustee from time to time. Accordingly, there should be no Additional Payments made to VTA Workers, unless the Trustee determines an alternative Prescribed Amount. Under Clause X.(x) of the Deed, if certain additional conditions are met after a Worker's employment is terminated, that Worker is entitled to payment of an Additional Payment from the Scheme, equal to the balance standing to their credit in their Worker's Account. The Worker's entitlement to the Additional Payment is dependent upon two conditions being met: § the Worker's employment being terminated, and § events stipulated under Clause X.X(x) occurring For an Additional Payment to be made, the termination of the Worker's employment still has to occur - no Payment is made because of the other events occurring, without termination first taking place. As such, the necessary causal connection exists between the termination, and the ultimate payment of the Additional Amount - the Payment follows as a result of the termination of the Worker's employment. In other words, but for the termination of their employment, the Worker would have no entitlement to an Additional Payment and the relevant Additional Payment would not have been received by the Worker. Therefore, Additional Payments made to DTA Workers and VTA Workers are received by Workers 'in consequence of' the termination of their employment. | Detailed Reasoning - Payment received no later than 12 months after termination: Paragraph 82-130(1)(b) of the ITAA 1997 requires that the payment must be received no later than 12 months after the termination of employment. Subsection 82-130(4) of the ITAA 1997 provides that the time limit does not apply, where the recipient is covered by a determination made by the Commissioner under subsections 82-130(5) or (7). Subsection 82-130(5) of the ITAA 1997 states that the Commissioner may determine paragraph (1)(b) does not apply if the time between the termination and the payment is reasonable, having regard to the following: § The circumstances of the termination, including any dispute in relation to it § The circumstances of the payment § The circumstances of the person making the payment § Any other relevant circumstances Subsection 82-130(7) of the ITAA 1997 states that the Commissioner may determine, by legislative instrument, that paragraph (1)(b) does not apply to a class of payments, or a class of recipients of payments. The Commissioner has issued ETP Determination 2019/1 Income Tax: Employment Termination Payments Redundancy Trusts (12 month rule) (ETP 2019/1) in relation to this matter. ETP 2019/1 provides that paragraph 82-130(1)(b) of the ITAA 1997 does not apply to a late termination payment , as defined by that instrument, if: (a) The person whose employment was terminated was a member of a redundancy trust and an application for the payment was lodged with the trustee of the redundancy trust within 12 months of the person becoming entitled to the payment under the terms of the trust deed of the redundancy trust; and (b) The payment was made by the trustee of the redundancy trust: (i) As soon as practicable after receipt of the application for payment; or (ii) ter than 2 years after the termination of the person's employment that led to the entitlement; whichever occurs earlier. ETP 2019/1 further provides that 'redundancy trust' means: (a) A fund that: (i) Is endorsed as an approved worker entitlement fund under subsection 58PB (3) of the FBTAA; or (ii) ntity that operates the fund is endorsed for the operation of the fund under subsection 58PB (3A) of the FBTAA; or (b) A fund that, just before 28 June 2011, was an approved worker entitlement under subsection 58 PB (2) of the FBTAA. In this case, you have asked the Commissioner to make an assumption that, either all Payments will be received by the relevant Worker within 12 months of the relevant termination event, or they will be received within a longer period as permitted by the Commissioner, pursuant to any determination that the Commissioner may make, having regard to ETP 2019/1. The Deed contains the following relevant definitions: § Approved Worker Entitlement Fund - means an approved worker entitlement fund within the meaning of section 58PB of the Fringe Benefits Tax Assessment Act 1986 . § Scheme - means the trust created under this Deed and known by such name as is determined in accordance with Clause XX. § Reciprocating Scheme means: a) any Approved Worker Entitlement Fund; or b) any fund that was an Approved Worker Entitlement Fund at the time contributions were made to it, as may from time to time be approved by the Trustee. The above would seem to suggest that the Scheme is also an approved worker entitlement fund. However, you have not provided any documentation that explicitly makes clear that the Trustee has been endorsed as an approved worker entitlement fund. Regardless, the Commissioner is prepared to accept that all Payments will be received by the relevant Workers within 12 months of the relevant employment termination event, or within a longer period as permitted by the Commissioner pursuant to any determination that the Commissioner may make. | Detailed Reasoning - Not a payment mentioned in section 82-135 of the ITAA 1997: Section 82-135 of the ITAA 1997 provides that certain payments are not ETPs, including: § unused annual leave and unused long service leave payments § genuine redundancy and early retirement scheme payments up to the tax-free limit § capital payments for personal injury as compensation for an inability to be employed In this case, you have asked the Commissioner to accept that, before making a Payment, you will satisfy yourself, on a reasonable basis, upon the receipt of sufficient evidence, that the Worker's employment has been terminated in the manner claimed, whether that be voluntary termination, death, permanent incapacity, or genuine redundancy. As per the definition of Prescribed Amount component in Clause X.X, depending on whether the relevant Worker is a VTA Worker, or a DTA Worker, and referencing the relevant Severance Event, Prescribed Amounts will only be received by Workers upon voluntary termination, death, permanent incapacity, or genuine redundancy. Under the terms of the Deed, Payments made to Workers are not excluded by section 82-135 of the ITAA 1997 (with the exception of the Prescribed Amount payable to DTA Workers upon termination due to genuine redundancy). Payments of Additional Amount components differ from Prescribed Amounts only in that certain further requirements have to be met, in order for the Worker to be entitled to such a Payment. Accordingly, all Payments made to Workers (both Prescribed Amounts and Additional Amounts) will be considered to be ETPs (with the exception of tax-free amounts of genuine redundancy payments made to DTA Workers, which are discussed below.) The Trustee must withhold an amount of PAYG tax from this payment, at the applicable rate. | Detailed Reasoning - Genuine redundancy payments: Section 82-135 of the ITAA 1997 provides that certain payments are not employment termination payments. Paragraph 82-135(e) of the ITAA 1997 excludes from an ETP the part of a genuine redundancy payment worked out under section 83-170. Section 83-175 of the ITAA 1997 defines what is a genuine redundancy payment. The section identifies: § the conditions that must be satisfied for at least part of a payment to be treated as a genuine redundancy payment; § how to work out what amount of the payment is a genuine redundancy payment; and § what payments are excluded from being a genuine redundancy payment A payment made to an employee is a genuine redundancy payment if it satisfies all the conditions set out in section 83-175 of the 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 employee's 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 the 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 the employee reached pension age; (ii) if the employee's 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 arm's length the payment does not exceed the amount that could reasonably be expected to be made if the dismissal were at arm's 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. As can be seen above, for a payment to be a genuine redundancy payment, section 83-175(1) requires: § The payment to be received by an employee who is dismissed because their position is genuinely redundant ; and § The payment exceeds the amount that could reasonably be expected to be received by the employee if their employment was terminated voluntarily at that time. For a genuine redundancy payment to exist, both elements need to be satisfied. The Commissioner 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 genuine redundancy under section 83-175 of the ITAA 1997. Paragraph 11 of TR 2009/2 states: There are four necessary components within this requirement: § The payment 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. | Detailed Reasoning - Component 1: payment 'in consequence of' termination: As outlined above, the phrase 'in consequence of' is not defined in the ITAA 1997. As stated above (under 'Employment termination payment'), in line with the Commissioner's view as per TR 2003/13, it is considered that none of the relevant Payments would have been made, without the Worker's employment first having been terminated. | Detailed Reasoning - Component 2: 'dismissal' from employment: The Commissioner's view is that a genuine redundancy can only arise where there is no suitable job available for the employee with the employer, meaning that he or she must therefore be dismissed. Dismissal requires a decision to terminate employment at the employer's initiative without the consent of the employee. Determining whether an employee has consented to their termination requires an assessment of the facts and circumstances of each case. | Detailed Reasoning - Component 3: dismissal caused by 'redundancy': Section 83-175 further requires that the dismissal be caused by redundancy of the employee's position, and not for some other reason. The reason for a dismissal is to be established in light of the facts and circumstances of each case. | Detailed Reasoning - Component 4: 'genuine' redundancy: Contrived cases of redundancy will not meet the conditions in section 83-175 of the ITAA 1997. Whether a redundancy is 'genuine' is determined on an objective basis. The fact that an employer and employee have an understanding that a payment on termination is caused by redundancy or that the employer treats the payment as a redundancy payment for tax purposes does not of itself establish genuine redundancy. Regarding components 2, 3 and 4, you have requested that the Commissioner make an assumption that the Trustee will, before making a Payment, receive sufficient evidence to satisfy itself, on a reasonable basis, that the Worker's employment has been terminated in the manner claimed, including where that claim is in relation to a genuine redundancy. | Detailed Reasoning - Additional requirements: As outlined above, in addition to the basic requirements for a genuine redundancy payment found in subsection 83-175(1) of the ITAA 1997, the further conditions for genuine redundancy payment treatment in subsections 83-175(2) and (3) require that: § the dismissed employee is not older than the specified age limits; § the termination is not at the end of a fixed period of employment; § the actual amount paid is not greater than the amount that could reasonably be expected had the parties been dealing at arm's length, in the event that the employer and employee are in fact not dealing at arm's length in relation to the dismissal; § there is no arrangement entered into between the employer and employee or the employer and another entity to employ the dismissed employee after the termination; and § the payment is not in lieu of superannuation benefits. | Detailed Reasoning - Age-based limits: Under paragraph 83-175(2)(a) of the ITAA 1997, an employee must be less than the pension age at the time of dismissal for a redundancy payment to qualify as a genuine redundancy payment. The Deed defines 'Pension Age' as having the meaning provided by section 995-1 of the Income Tax Assessment Act 1997 . Pension age is defined in section 995-1 of the ITAA 1997, as follows: pension age has the meaning given by subsection 23(1) of the Social Security Act 1991 . Subsection 23(1) of the Social Security Act 1991 , defines pension age as 'having the meaning given by subsections (5A), (5B), (5C) and (5D)'. The above subsections provide that the pension age for both men and women, born on or after 1 January 1957, is 67 years of age. You have requested that the Commissioner make an assumption that the Trustee will, prior to making a Payment, satisfy itself on a reasonable basis of the Worker's age. The Commissioner agrees to make this assumption. | Detailed Reasoning - Not the end of a particular period of employment: Under subparagraph 83-175(2)(a)(ii) of the ITAA 1997, a payment made at the end of a fixed period of employment cannot normally be a genuine redundancy payment. You have asked the Commissioner to make an assumption that there exists no agreement or arrangement under which the Worker's employment would be terminated when they completed a particular period of service. The Commissioner agrees to make this assumption. | Detailed Reasoning - Arm's length amount: This condition only needs to be met if it is established that the employer and employee are not dealing at arm's length in relation to the dismissal. You have asked the Commissioner to make an assumption that the Worker and the employer dealt with each other at arm's length in relation to the termination of the Worker's employment, or otherwise the Payment does not exceed the amount that could reasonably be expected to be made if the termination was at arm's length. The Commissioner agrees to make this assumption. | Detailed Reasoning - No stipulated arrangement to employ: Under paragraph 83-175(2)(c) of the ITAA 1997, an arrangement to employ an employee after his or her termination prevents a dismissal giving rise to a genuine redundancy payment if that arrangement is entered into between either: § the employer and the dismissed employee; or § the employer and another entity. You have asked the Commissioner to make an assumption that there exists no agreement or arrangement to employ the Worker after the termination of their employment. The Commissioner agrees to make this assumption. | Detailed Reasoning - Payments not in lieu of superannuation benefits: Under subsection 83-175(3) of the ITAA 1997, a payment is not a genuine redundancy payment to the extent that it is made in place of superannuation benefits due at the time or in the future. You have stated that, under the Deed, the Prescribed Component is not paid in lieu of superannuation benefits to which the Worker may have become entitled at the time the payment was received or at a later time. | Detailed Reasoning - Amount of payment: As stated above, the other requirement under subsection 83-175(1) of the ITAA 1997 is that the payment exceeds the amount that could reasonably be expected to be received by the employee if their employment was terminated voluntarily at that time. In order therefore for subsection 83-175(1) of the ITAA 1997 to apply, it must be demonstrated that the payment is, or includes, an amount which exceeds what the Worker could reasonably be expected to receive in consequence of the voluntary termination of their employment at the time of dismissal. The Commissioner considers the application of subsection 83-175(1) of the ITAA 97 in Taxation Ruling TR 2009/2 'Income tax: genuine redundancy payments' (TR 2009/2). Paragraphs 58 to 63 and 319 to 320 of TR 2009/2 state: 58. Subsection 83-175(1) identifies the amount attributable to redundancy by deducting the amount that could reasonably be expected to be received by the employee if he or she had voluntarily terminated employment at the time of being dismissed. In this Ruling, this is referred to as the voluntary termination element of a redundancy payment. 59. Apart from this hypothetical change in circumstances to a voluntary termination instead of a dismissal caused by redundancy, all other circumstances surrounding the termination are assumed to be the same. 60. Accordingly, if the employer and the employee were not dealing with each other at arm's length in relation to the dismissal, this must form part of the circumstances for the purposes of working out the voluntary termination element. 61. It would generally be expected that a greater amount would be paid on redundancy than voluntary termination. This recognises the purpose of redundancy payments, being primarily to compensate for loss of non-transferable entitlements (for example accrued sick leave and accrued long service leave prior to 10 years' service) and the peculiar hardship associated with being made redundant. 62. Contractual or other entitlements payable by an employer on voluntary termination are generally a sound guide as to what might reasonably be expected. However, this would be less so if the employer and employee are not dealing at arm's length. 63. There may be industry norms that could be used as a guide to what payments would be made on voluntary termination. It may also be appropriate to compare standard payments made on voluntary termination within a particular company. However, these comparisons must take account of the actual nature of the dealings as influenced by the relationship between the parties. ....... 319. The voluntary termination element is an integral part of working out the amount of a genuine redundancy payment. The apparent purpose of deducting this element from the payments otherwise made in consequence of the employee's termination is to identify the extent to which those payments are specifically attributable to termination because of redundancy. 320. For example, some employers make contributions to trust arrangements to cover an employee's termination entitlements in a variety of circumstances, including redundancy. If an employee is entitled to a payment from such a trust, it is likely the case that the voluntary termination amount reduces the genuine redundancy payment to zero. This would be because the same payment would be made to the employee had he or she voluntarily resigned. Subsection 83-175(1) of the ITAA 1997 was also considered in Class Ruling 2012/117 and it was noted that no part of payments made to members by a trust equal to their account balances with that trust, in the case of genuine redundancy, were considered genuine redundancy payments as under the terms of the trust a member would receive the same payment if they resigned or retired from the workforce. As a result, it could not be said that any part of such a payment was in excess of what the member could reasonably expect to have received had they voluntarily terminated their employment at the time of their dismissal. The term 'voluntary termination' as utilised in subsection 83-175(1) is not defined in the ITAA 1997. The terms 'dismissal' and 'redundancy' in the context of the subsection are discussed in TR 2009/2 at paragraphs 18 and 25, however, where it is stated: 18. Dismissal is a particular mode of employment termination. It requires a decision to terminate employment at the employer's initiative without the consent of the employee. This stands in contrast to employment that is terminated at the initiative of the employee, for example in the case of resignation. ..... 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. Having regard to the ordinary definitions of 'voluntary' and 'termination', and the above discussion in TR 2009/2, it could be said that 'voluntary termination' refers to a member ending their employment because of their own choice or on their own accord. Most notably, this would include resignation and retirement. Accordingly, what must be determined in this case is whether a payment, or part thereof, made by the Trustee to a Worker, due to genuine redundancy, is in excess of what would be paid under voluntary termination at the time of dismissal, such that the payment or part thereof should be treated as a genuine redundancy payment under subsection 83-175(1) of the ITAA 1997. The calculation of the amount payable under voluntary termination needs to have regard to the terms of the Deed, any relevant industrial award, any relevant workplace agreement or any other terms or conditions which could provide a basis for a payment under a voluntary termination. You have asked the Commissioner to make an assumption that the respective enterprise agreements under which each of the Workers are employed, do not entitle those Workers to any payments upon the voluntary termination of their employment, other than, and in addition to, an entitlement to a payment in respect of a notice period and/or the payment of accrued unpaid entitlements (for example, accrued annual leave). The Commissioner is willing to make this assumption. The Trustee has submitted that the amount could reasonably be expected to be received by a DTA Worker in consequence of the voluntary termination of their employment is nil, as DTA Workers are not entitled to receive a Payment due to the voluntary termination of their employment. The Deed refers to payments only being made as a result of a Severance Event. In the case of a DTA Worker, a Severance Event is defined as 'the termination of the Worker's employment for any reason whatsoever, excluding the voluntary termination of the Worker's employment prior to the Worker attaining Pension Age'. As such, it is clear that the amount that could reasonably be expected to be received by a DTA Worker, in consequence of the voluntary termination of their employment, is nil. Under Clause XX of the Deed, DTA Workers may elect to become VTA Workers, as follows: | Detailed Reasoning - Worker may elect to be a VTA Worker: A Worker may, at any time, by written notice to the Trustee in such form (if any) as the Trustee approves, elect to become a VTA Worker. An election made under Clause xx is irrevocable. However, from the date of the election, such Workers (as they are now VTA Workers) would only be entitled to a Payment upon the voluntary termination of their employment, a VTA Severance Event being 'the voluntary termination of the Worker's employment, or termination due to death or Permanent Incapacity'. Such Workers have no entitlement to a payment on genuine redundancy. Similarly, if a Worker's employment is terminated due to a genuine redundancy, their entitlement to a Payment (and the amount of that Payment) will be determined by whether they are a DTA Worker or VTA Worker at that point in time, as follows: § If the Worker is a DTA Worker, they will be entitled to a Payment equal to the tax-free amount calculated under subsection 83-175(3) of the ITAA 1997. § If the Worker elected to become a VTA Worker, they will not be entitled to a Payment. As DTA Workers are not entitled to a Payment in the case of voluntary termination, but are entitled to a Payment due to genuine redundancy, the amount they receive is in excess of the amount they could reasonably expect to receive upon the voluntary termination of their employment. As such, the amount of this payment (up to the tax-free cap) is not assessable income, nor exempt income, of the Worker, and the Trustee is not required to withhold an amount of PAYG tax from this payment. Note: Where the DTA Worker has reached Pension Age, the payment will be taxable as an ETP, as the requirements of a genuine redundancy would not have been met.

Question 5: Is the Trustee required to withhold PAYG tax from the Additional Amount> component of Payments made to DTA Workers (under pension age), under section 12-85 of Schedule 1 to the TAA 1953, due to the termination of employment by reason of genuine redundancy? | Answer: 5: Yes. The Trustee is required to withhold PAYG tax from the Additional Amount component of Payments made to DTA Workers (under pension age), under section 12-85 of Schedule 1 to the TAA 1953, on the basis that those payments are ETPs under section 82-130 of the ITAA 1997.