Edited version of your written advice

Authorisation Number: 1013079745717

Date of advice: 29 August 2016

Ruling

Subject: Employment termination payments

Question

Are the payments the Taxpayer received from the Employer upon termination of their employment a genuine redundancy payment in accordance with section 83-175 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No

This ruling applies for the following period:

Income year ended 30 June 2016

The scheme commences on:

1 July 2015

Relevant facts and circumstances

The taxpayer is over 65 years of age.

The taxpayer was employed by the employer on a permanent basis.

The taxpayer's employment was terminated by the employer as their position was dis-established.

The employer provided a severance payment which was treated as an employment termination payment on the PAYG summary.

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 subsection 83-175(3).

Income Tax Assessment Act 1997 subsection 83-175(4).

Reasons for decision

Summary

The payment received by the taxpayer upon termination of their employment by the employer is not a genuine redundancy payment as it was received subsequent to the taxpayer reaching age 65.

The payment received will be treated as an employment termination payment, for taxation purposes.

Detailed reasoning

In accordance with subsection 83-175(1) of the ITAA 1997, 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; and

• exceeds the amount that could reasonably be expected to be received by the employee in consequence of the voluntary termination of their employment at the time of dismissal.

Further, for a payment to qualify as a genuine redundancy payment, all other conditions in subsections 83-175(2), (3) and (4) of the ITAA 1997 must be met. These conditions include:

• the payment must be made before a person turns 65 or an earlier mandatory age;

• the actual amount that was paid is not greater than the amount that could reasonably be expected to be paid had the parties been dealing at arm's length;

• there was no arrangement for re-employment with the employer or a related party after the termination date; and

• the payment was not in lieu of superannuation benefits.

• the payment is not a payment mentioned in section 82-135 of the ITAA 1997

As the taxpayer had already turned 65 by the time the payment was made, these conditions will not be satisfied and the payment will not be considered a genuine redundancy payment.

Hence, no amount of the payment will be tax-free under section 83-170 of the ITAA 1997. Instead, the payment will be treated as an employment termination payment under section 82-130 of the ITAA 1997 as it:

• was received by you in consequence of the termination of your employment;

• was received no later than 12 months after the date of termination; and

• was not a payment mentioned in section 82-135 of the ITAA 1997

ATO view documents

Taxation Ruling TR 2003/13 Income tax: eligible termination payments (ETP): payments made in consequence of the termination of any employment: meaning of the phrase 'in consequence of' (TR 2003/13)

Taxation Ruling TR 2009/2 Income Tax: genuine redundancy payments

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