Edited version of your written advice

Authorisation Number: 1012849988412

Date of advice: 30 July 2015

Ruling

Subject: Employment termination payment - genuine redundancy

Question

Is your client in receipt of a genuine redundancy payment as prescribed by section 83-175 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No.

This ruling applies for the following periods:

For the year ended 30 June 2015.

The scheme commences on:

1 July 2014.

Relevant facts and circumstances

Prior to the 2014-15 income year your client was offered a fixed term employment contract with the Employer for a certain project. Employment commenced in the same income year.

The contract was for the duration of the project, at which time your client was, subject to certain criteria, eligible for a project incentive payment.

Your client's project contract was provided.

Prior to the 2014-15 income year the Employer offered your client a fixed term employment contract for a second project. This employment period would commence immediately after the completion of the first project.

Your client would be eligible for a project incentive payment upon the completion of the second project.

Your client's second project contract was provided.

Prior to the 2014-15 income year the Employer offered your client a fixed term employment contract for a third and final project. This employment period would commence at the completion of the second project.

Your client would be eligible for a project incentive payment upon the completion of the third and final project.

Your client's third project contract was provided.

In early 2015 a letter from the Employer confirms that your client's position is no longer required because the third and final project is nearing completion.

On the completion of the third project your client's position was terminated as there were no alternative positions for the Employer to offer your client. At this point in time the project incentive payments for all three fixed term projects were paid to your client.

In the 2014-15 income year an employment termination payment was made to your client.

During the three fixed term projects, your client attended and completed education and workshops related to the employment. This was paid by the Employer.

Your client's role in the employment contracts was full time.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 83-175.

Income Tax Assessment Act 1997 Subsection 83-175(2)

Reasons for decision

Summary

No part of the employment termination payment made to your client is a genuine redundancy payment. This is because your client was employed for a fixed period of employment specified under subparagraph 83-175(2)(a)(ii) of the ITAA 1997.

Detailed reasoning

Genuine redundancy payment

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).

For a payment to be a genuine redundancy payment it must satisfy paragraph 83-175(2)(a) of the ITAA 1997 which states:

(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);

The Commissioner has issued Taxation Ruling TR 2009/2 (TR 2009/2), titled Income Tax: genuine redundancy payments, which provides guidance on the factors to be considered in the interpretation of section 83-175 of the ITAA 1997.

Paragraphs 36 and 38 of TR 2009/2 states:

36. Under subparagraph 83-175(2)(a)(ii), a payment made at the end of a fixed period of employment cannot normally be a genuine redundancy payment.
…

38. In some cases, particularly those involving multi-disciplinary project-based work, an employee's period of service may be determined by reference to the achievement of a particular outcome rather than a specified period of time. The employee's period of service in these circumstances concludes on the achievement of that outcome.

In relation to project based work TR 2009/2 provides an example at paragraphs 148 to 154, which states:

148. Buildcorp makes contributions to an industry trust on behalf of its workers to cover the company for future termination payments (other than unused annual leave payments) it might be required to make under industry awards. The workers are all employed on a daily hire basis.

149. Buildcorp has a major construction contract to build an office block. Buildcorp's employees, its subcontractors and their employees have all been advised that they can expect to be employed on the project for at least six months, depending on their trade or other qualifications.
...

152. ... if the workers had all completed their allotted tasks in keeping with the mutual intentions of the parties, any payments accruing on their termination of employment would not be eligible to be genuine redundancy payments. In these circumstances, the employees are terminated at the expiry of a fixed period of employment.

In this case, your client received an offer of employment from the Employer to work on a specific project. The contract was for the duration of the project.

It was clear from the contract of employment that the offer of employment is tied exclusively to that specific project and employment would expire on the completion of the particular project. This was specifically stated in the contract.

You advised that your client was employed on two successive projects. That is, at the completion of the first project your client was offered to continue their employment with the Employer by agreeing to a fixed term employment contract for the second project. Likewise, upon the completion of the second project, your client was offered a fixed term employment contract for the third and final project.

In this case, upon the completion of each project your client was given a new contract which sets out the new conditions of employment in addition to a new scope of work i.e. the new contract sets out the new project on which your client will be required to work on.

In this case, upon the completion of the last of the three projects your client was paid an employment termination payment and project incentive payment for all three fixed term projects. This final termination payment made to your client was made at the completion of their scope of work. This payment was made because your client's period of service came to an end at the achievement of an outcome i.e. the completion of the project.

It is clear from your client's three offers of employment that their position was tied exclusively to the outcome of the three respective projects and employment would expire on the completion of the final project. Even though your client may have worked on numerous projects, each project is covered by a separate contract which limits the period of assignment to that current project.

Therefore, the Employer's final termination payment is a payment made at the end of a fixed period of employment as specified under subparagraph 83-175(2)(a)(ii) of the ITAA 1997. Therefore, no part of the payment is a genuine redundancy payment in accordance with section 83-175 of the ITAA 1997.

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