ATO Interpretative Decision
ATO ID 2001/19
Superannuation
Superannuation: Bona Fide Redundancy (Completed Employment Contract)FOI 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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Whether the severance payments made at the end of a completed employment contract are bona fide redundancy payments for the purposes of section 27F of the Income Tax Assessment Act 1936
Decision
The severance payments made at the end of a completed employment contract are not bona fide redundancy payments for the purposes of section 27F of the Income Tax Assessment Act 1936
Facts
The facts are:
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- the employees are employed for a fixed-term;
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- the employment contract specifies the start date and finish date of the employment (the finish date can be on completion of a specific task or project);
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- the contract cannot be terminated by the employer other than during a probationary period or due to serious or wilful misconduct;
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- an employee may be entitled to a severance payment or retrenchment benefit if the contract is not renewed in certain circumstances; and
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- the termination of employees did not occur prior to the date on which the employee completed the particular period of service.
Reasons For Decision
For an amount to be a bona fide redundancy payment it must meet the requirements set out in section 27F of the Income Tax Assessment Act 1936. Subparagraph 27F(1)(b)(i) of the Income Tax Assessment Act 1936 requires that termination must occur before the taxpayer's employment would have terminated under the terms of employment because of the taxpayer attaining a certain age or completing a certain period of service.
As the employees' services were terminated upon the completion of their contracts the severance payment did not satisfy subparagraph 27F(1)(b)(i) of the Income Tax Assessment Act 1936 and therefore are not a bona fide redundancy payment.
Date of decision: 16 September 1998
Legislative References:
Income Tax Assessment Act 1936
section 27F
Related Public Rulings (including Determinations)
TR 94/12
Keywords
Employment contracts
Bona fide redundancy payment
Severance payment
ISSN: 1445-2782
Date: | Version: | |
You are here | 16 September 1998 | Original statement |
9 May 2008 | Archived |