ATO Interpretative Decision
ATO ID 2002/144 (Withdrawn)
Superannuation
Superannuation, retirement & employment termination: Eligible termination payments and Bona fide redundancyFOI status: may be released
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This ATO ID is withdrawn as it is a simple restatement of the law and does not contain an interpretative decision. Section 27F of the Income Tax Assessment Act 1936 has also been replaced by section 83-175 of the Income Tax Assessment Act 1997 for the 2007-08 income year and later income years.This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
Status of this decision: Decision Withdrawn 4 July 2008
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 there a bona fide redundancy payment where an agreement to employ the taxpayer after termination of employment exists?
Decision
No. The lump sum payment is not a bona fide redundancy payment under subsection 27F(1) of the Income Tax Assessment Act 1936 (ITAA 1936).
Facts
The taxpayer's employer pays the taxpayer a lump sum in consequence of termination of employment. Prior to termination of employment the taxpayer establishes a consulting company and is appointed as a director of the company. An agreement is then entered into between the consulting company and the taxpayer's employer. The agreement provides that the taxpayer will be employed by the consulting company to supply the taxpayer's services as a contractor to the employer.
Reasons for Decision
Under subsection 27F(1) of the ITAA 1936, five conditions 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 are not 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 at arms length.
The final condition at paragraph 27F(1)(d) of the ITAA 1936 provides 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. In this case, there was an agreement at the termination time between the employer and a third party. The consulting company had agreed with the employer to employ the taxpayer after the termination of the taxpayer's employment. Although all the other conditions under subsection 27F(1) of the ITAA 1936 have been satisfied, the payment is not considered a bona fide redundancy payment because of the agreement for re-employment with the consulting company.
Date of decision: 28 October 1997
Legislative References:
Income Tax Assessment Act 1936
section 27F
Other References:
Previously released as CDS10209
Keywords
Bona fide redundancy payments
Eligible termination payments
ISSN: 1445-2782
| Date: | Version: | |
| 28 October 1997 | Original statement | |
| You are here → | 4 July 2008 | Archived |