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Edited version of your private ruling
Authorisation Number: 1012453336451
Ruling
Subject: Genuine redundancy payment
Question
Is any part of a payment made after the age of 65, in respect of the termination of an employment that occurred before the taxpayer turned 65, the tax-free part of a genuine redundancy payment?
Answer
Yes
This ruling applies for the following period:
Year ended 30 June 2014
The scheme commences on:
1 July 2013
Relevant facts and circumstances
Your position was made redundant due to a company restructure and you have advised that you will be receiving a payment based on genuine redundancy.
You were given six months notice from your employer that your employment would be terminated.
You nominated to terminate your employment at an earlier termination date.
You will be under the age of 65 on the date of the termination of your employment.
You will be over the age of 65 on the date of receipt of your employment termination payment.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 82-135.
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 83-175(3).
Income Tax Assessment Act 1997 Subsection 83-175(4).
Reasons for decision
Summary
Provided you have satisfied all the conditions for a genuine redundancy payment, the employment termination payment you will receive will contain the tax free part of a genuine redundancy payment.
The fact that your termination payment will be received after the age of 65 will not preclude your payment from being a genuine redundancy payment.
Detailed reasoning
Genuine redundancy payments
A payment made to an employee is a genuine redundancy payment if it satisfies all criteria set out in section 83-175 of the Income Tax Assessment Act 1997 (ITAA 1997). This section states:
(1) A genuine redundancy payment is so much of a payment received by an employee who is dismissed from employment because the employee's position is genuinely redundant as exceeds the amount that could reasonably be expected to be received by the employee in consequence of the voluntary termination of his or her employment at the time of dismissal.
(2) A genuine redundancy payment must satisfy the following conditions:
(a) the employee is dismissed before the earlier of the following:
(i) the day he or she turned 65;
(ii) if the employee's employment would have terminated when he or she reached a particular age or completed a particular period of service - the day he or she would reach the age or complete the period of service (as the case may be);
(b) if the dismissal was not at arm's length - the payment does not exceed the amount that could reasonably be expected to be made if the dismissal were at arm's length;
(c) 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 dismissal.
(3) However, a genuine redundancy payment does not include any part of a payment that was received by the employee in lieu of superannuation benefits to which the employee may have become entitled at the time the payment was received or at a later time.
Payments not covered
(4) A payment is not a genuine redundancy payment if it is a payment mentioned in section 82-135 (apart from paragraph 82-135(e)).
Specific to your case is the condition in paragraph 83-175(2)(a) of the ITAA 1997. Paragraph 83-175(2)(a) of the ITAA 1997 requires that an employee be dismissed the earlier of the day they turn 65 or completed a particular period of service that would have terminated the taxpayer's employment.
You have advised that you will be under the age of 65 at the time of your dismissal. Furthermore there is no date prior to you attaining age 65 where you would have had to retire from your employment. Accordingly you will satisfy paragraph 83-175(2)(a) of the ITAA 1997.
Note that the day in which you receive your employment termination payment is irrelevant to the consideration of paragraph 83-175(2)(a) of the ITAA 1997. The relevant date of consideration is the date of an employee's dismissal. Accordingly, the fact that you will receive your employment termination payment after the day you turn 65 will not prevent your payment from being a genuine redundancy payment.
Conclusion
Provided all other conditions for a genuine redundancy are satisfied, a payment made after the age of 65, in respect of the termination of an employment that occurred before the taxpayer turned 65, will be the tax-free part of a genuine redundancy payment.
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