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Edited version of your private ruling

Authorisation Number: 1012279331209

Ruling

Subject: Genuine redundancy - subsequent re-employment

Question:

Will there be a genuine redundancy payment for the purposes of the Income Tax Assessment Act 1997 if you cease employment with the employer and commence employment with another employer in the employer group?

Answer:

No.

This ruling applies for the following periods:

For the year ended 30 June 2013

The scheme commences on:

1 July 2012

Relevant facts and circumstances

You are currently employed in a full-time position with the employer.

You will be made redundant from the employer after more than 30 years of service under a particular legislative regulation.

You are over 55 years of age at the time of the termination of your employment with the employer.

On termination:

Ÿ you will receive all your unused annual leave and long service leave; and

Ÿ your main source of income will be your superannuation pension from the employer sponsored superannuation scheme (the Scheme).

Your employment with the employer ceased towards the end of the 2011-12 income year. You commenced casual employment with another employer in the employer group on the following day. No annual leave, long service leave and superannuation entitlements will be accrued under your new role.

Relevant legislative provisions

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 Paragraph 83-175(2)(b).

Income Tax Assessment Act 1997 Paragraph 83-175(2)(c).

Income Tax Assessment Act 1997 Subsection 995-1(1).

Reasons for decision

Summary

There is an effective termination of your employment with the employer. Accordingly, the payment made in consequence of the termination of your employment is considered an employment termination payment.

There was an arrangement in place prior to your termination of employment between you and your employer that you will be re-employed by another employer in the employer group after the date of termination. Accordingly, the payment cannot be treated as a genuine redundancy payment.

Detailed reasoning

Termination of employment

For a termination of employment to be effective, the termination must be real and not merely illusory.

In Reseck v. Federal Commissioner of Taxation (1975) 49 ALJR 370; (1975) 6 ALR 642; (1975) 75 5ATR 538; (1975) 75 ATC 4213; (1975) 133 CLR 45, Justice Gibbs made the following comments:

Therefore, if a person purports to resign from their employment and is subsequently re-employed with the same employer the following working day then it would be considered unlikely that there was an effective termination of employment.

In Taxation Board of Review Decision Case B19 70 ATC 88, a woolclasser was, for the whole of the income year, employed by a grazier's shearing company under a general contract of employment as resident overseer for the shearing programme in the locality. For this he received a retainer, there being mutual obligations on the parties to offer and accept work when available.

Under the award, a separate contract had to be signed for the work at each shed and on its completion the classer had to be paid pro-rata holiday pay, in addition to the award wage. The Board held there was no cessation of the obligations between employer and taxpayer and the mere fact that a separate contract had to be made for each shed did not mean that there was a termination of employment on each occasion.

In your particular case, you state that you will be made redundant by the employer after more than 30 years of service. As a consequence, you will no longer be a full-time employee of the employer.

As a direct result of the redundancy, you will be entitled to a set number of weeks' salary, accrued annual leave and accrued long service leave. Further, as you are over 55 years of age, you are entitled to a superannuation pension paid under the Scheme.

All of these point to a clear termination of employment with the employer. Accordingly, the payment made in consequence of the termination of your employment is considered an employment termination payment.

Re-employment with the same employer

It is noted that you will no longer accrue benefits such as annual leave and long service leave. As such, your terms and conditions of employment have changed to such an extent that it can be argued that your employment with the employer has been terminated.

As there is a clear termination of your employment with the employer, the subsequent re-employment with the same employer will not jeopardise the concessional treatment of the employment termination payment.

Genuine redundancy payment

It is noted that a particular legislative regulation mentions redundancy.

For income tax purposes, a payment made to an employee is a genuine redundancy payment if it satisfies all the criteria set out in section 83-175 of the Income Tax Assessment Act 1997 (ITAA 1997). This section states:

Payments not covered

As previously determined the payment was made in consequence of your termination of employment. The next issue to be considered is whether there is any arrangement between you and the employer to re-employ you after the termination of employment.

The requirement under paragraph 83-175(2)(c) of the ITAA 1997

As noted above, paragraph 83-175(2)(c) of the ITAA 1997 requires that, 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 the dismissal.

The term 'arrangement' is defined in subsection 995-1(1) of the ITAA 1997 as meaning:

In your particular case, a letter from your employer stated (among other matters) that you would receive a formal notice of redundancy several weeks prior to your selected separation date. The letter further stated that you would be transferred to a casual position with a related employer in the employer group the following day.

The wording of the above clearly indicates that there is an arrangement between you and the employer to transfer you to casual employment with a related employer in the employer group after the termination of your full-time employment with the employer. Accordingly, the payment received by you on the termination of your employment is not a genuine redundancy payment as there is an arrangement to re-employ you after the termination of the employment.

Therefore, the requirement under paragraph 83-175(2)(c) of the ITAA 1997 has not been satisfied. Consequently, not all of the conditions contained in section 83-175 have been met and the payment cannot be considered a genuine redundancy payment.


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