ATO Interpretative Decision
ATO ID 2002/147
Superannuation
Superannuation, retirement & employment termination: Eligible termination payments and bona fide redundancy paymentsFOI status: may be released
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This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Is the payment a bona fide redundancy payment where there was an agreement between the taxpayer and the employer to re-employ the taxpayer after the termination of their employment?
Decision
No. Where there was an agreement between the taxpayer and the employer to re-employ the taxpayer after the termination of their employment, the payment received on termination of the employment is not a bona fide redundancy payment (subsection 27F(1) of the Income Tax Assessment Act 1936 (ITAA 1936).
Facts
The taxpayer's permanent full-time employment was terminated. At the time of termination there existed an agreement between the taxpayer and the employer which provided for the taxpayer to be re-employed on a casual basis.
Reasons for Decision
Under subsection 27F(1) of the ITAA 1936 there are 5 conditions which must be satisfied before a payment can be regarded as a bona fide redundancy payment. The conditions require an eligible termination payment (ETP) to be made on termination of employment by reason of bona fide redundancy. The payment must not be from an eligible superannuation fund and the termination must occur before the taxpayer's 65th birthday or before the taxpayer's employment would necessarily have had to terminate. In addition, if the taxpayer and employer were not dealing at arm's length, the ETP must not be greater than the amount that could reasonably be expected to have been paid had the parties been dealing at arms length.
The final condition in paragraph 27F(1)(d) of the ITAA 1936 states that there must not be, at the termination time, any agreement between the taxpayer and the employer, or between the employer and another, to employ the taxpayer after the termination time.
Because of the existence of the agreement to re-employ the taxpayer on a casual basis being in place, the payment could not be regarded as a bona fide redundancy payment.
Date of decision: 8 October 1997
Legislative References:
Income Tax Assessment Act 1936
subsection 27F(1)
paragraph 27F(1)(d)
Other References:
Previously released as CDS10049
Keywords
Bona fide redundancy
Eligible termination payments
ISSN: 1445-2782
| Date: | Version: | |
| You are here | 8 October 1997 | Original statement |
| 4 July 2008 | Archived |