ATO Interpretative Decision

ATO ID 2002/153 (Withdrawn)

Superannuation

• This ATO ID is withdrawn as it is a restatement of the position contained in Taxation Ruling TR 94/12.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is there a bona fide redundancy payment if a taxpayer's contract of employment is terminated by the employer following a restructure of the workplace and a new employee is appointed to the same position?

Decision

No. In this case the termination of employment does not constitute a bona fide redundancy. A condition under section 27F of the Income Tax Assessment Act 1936 (ITAA 1936) was not satisfied as the taxpayer's job was not redundant. Another taxpayer was appointed to the position of Chief Executive Officer and the new employee was to perform the same duties previously undertaken by the taxpayer. The payment is to be taxed as an ETP.

Facts

In this case the taxpayer was appointed as Chief Executive Officer of a business unit in 1995. In 1996 the parent organisation restructured a number of business units, which had a direct effect on the taxpayer's employment. The taxpayer's contract as Chief Executive Officer was terminated at the time of the restructure in 1996. The position was advertised as arising from restructuring and another person was appointed as Chief Executive Officer to perform the duties previously undertaken by the taxpayer.

Reasons for Decision

Section 27F of the ITAA 1936 lists the conditions for a payment to be treated as a bona fide redundancy payment. All conditions must be met before the payment will be treated as a bona fide redundancy payment. Taxation Ruling TR 94/12 confirms that, to qualify as a bona fide redundancy payment, the taxpayer must be dismissed by reason of their bona fide redundancy. This indicates that redundancy refers to a job becoming redundant and not to an employee becoming redundant (Short v. FW Hercus Pty Ltd (1993) 40 FCR 511; 35 AILR 151).

Taxation Ruling TR 94/12 states that redundancy is the situation where an employer no longer requires employees to carry out work of a particular kind or to carry out work of a particular kind at the same location. An employee's job is considered to be redundant if: a) an employer has made a definite decision that the employer no longer wishes the job the employee has been doing to be done by any one; b) that the decision is not due to the ordinary and customary turnover of labour; c) that the decision led to the termination of the employee's employment; and, d) that the termination of employment is not on account of any personal act or default of the employee.

Under paragraph (a) of subsection 27A(1) of the ITAA 1936 the definition of an eligible termination payment (ETP) in relation to a taxpayer includes any payment made 'in consequence of the termination of employment of the taxpayer'.

In this case the termination of employment does not constitute a bona fide redundancy. A condition under section 27F of the ITAA 1936 was not satisfied as the taxpayer's job was not redundant. Another taxpayer was appointed to the position of Chief Executive Officer and the new employee was to perform the same duties previously undertaken by the taxpayer. The payment is to be taxed as an ETP.

Legislative References:
Income Tax Assessment Act 1936
   subsection 27A(1)
   section 27F

Case References:
Short v. FW Hercus Pty Ltd
   (1993) 40 FCR 511
   35 AILR 151

Related Public Rulings (including Determinations)
TR 94/12

Other References:
Previously released as CDS10274

Keywords
Bona fide redundancy payments
Eligible termination payments

Business Line:  Superannuation

Date of publication:  8 February 2002

ISSN: 1445-2782