Edited version of your written advice

Authorisation Number: 1051305907632

Date of advice: 16 November 2017

Ruling

Subject: Genuine redundancy payment

Question

Is any component of the payment which you received on the termination of your employment a genuine redundancy payment?

Answer

No.

This ruling applies for the following period:

Income year ended 30 June 2017.

The scheme commences on:

1 July 2016.

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

● You commenced employment in mid-199X and progressed to the position of XYZ

● Your terms of employment are as per the Fair Work Act, the National Employment Standards and other general Company regulations and procedures

● The company made a decision to relocate.

● You were not willing to relocate due to the excessive travel time required and the negative impact on your family life.

● At this time your employer also decided to re-organise the management structure to coincide with the move to the new location.

● You were under the impression that as part of the structural change, your position of XYZ was to be made redundant.

● Your original date of termination was to be DDMMYY

● You were provided with an estimate of your termination payment which included a tax free redundancy payment.

● Following negotiations with your employer you agreed to extend your employment until DDMMYY in order to assist in settling staff into the new location and to help facilitate the organisational restructure. It was agreed that 80% of your termination pay would be paid on DDMMYY and the balance of 20% on the final termination date of DDMMYY.

● You signed a Settlement Agreement and Deed of Release (the Settlement Deed) dated DDMMYY

● Term X of the Settlement Deed states:

● The Employer will pay to the Employee a retrenchment payment, taxed as an eligible(sic) termination payment, in addition to any standard termination payment of unused annual leave and long service leave entitlements required under statute law.’

● You were provided with a new estimate of your termination payment (80% component) which no longer included a tax free redundancy component.

● You met the Settlement Deed requirement to commence employment at the new location

● Your payment summaries for the 2016-17 financial year were sent to you together with a letter that stated that your termination did not qualify as a genuine redundancy and, as a result, the concessional tax treatment for genuine redundancy payments which was provided in the original estimate of your termination pay should not have been applied. No tax free amount was shown at Label D on the individual – non business payment summary.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 83-175

Reasons for Decision

Summary

No component of the termination pay is a genuine redundancy payment as the position which you occupied substantially remains, albeit under a different title, following an organisational restructure.

Detailed reasoning

Genuine redundancy payment.

Under 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' that exceeds the amount that could reasonably be expected to be received by the employee in consequence of voluntary termination.

There are four basic requirements for a payment to qualify as a genuine redundancy payment:

1. The payment being tested must be received in consequence of an employee's termination.

2. That termination must involve the employee being dismissed from employment.

3. That dismissal must be caused by the redundancy of the employee's position.

4. The redundancy payment must be made genuinely because of a redundancy.

In addition to the basic requirements for a genuine redundancy payment found in subsection 83-175(1), the further conditions for genuine redundancy payment treatment in subsections 83-175(2) and (3) require that:

● the dismissed employee is not older than specified age limits;

● the termination is not at the end of a fixed period of employment;

● the actual amount paid is not greater than the amount that could reasonably be expected had the parties been dealing at arm's length, in the event that the employer and employee are in fact not dealing at arm's length in relation to the dismissal;

● there is no arrangement entered into between the employer and the employee or the employer and another entity to employ the dismissed employee after the termination; and

● the payment is not in lieu of superannuation benefits

The Commissioner has issued Taxation Ruling TR 2009/2 Income tax: genuine redundancy payments (TR 2009/2) which outlines the requirements to be satisfied before any payment made to a person whose employment is terminated qualifies for treatment as a GRP under subsection 83-175(1) of the ITAA 1997.

Requirement 1 - Payment ‘in consequence of’ an employee’s termination

The phrase 'in consequence of' is not defined in the ITAA 1997. However, the courts have interpreted the phrase in a number of cases. Whilst the courts have divergent views on the meaning of this phrase, the Commissioner’s view on the meaning and application of the 'in consequence of' test are set out in 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).

While TR 2003/13 contains references to repealed provisions, some of which may have been rewritten, the ruling still has effect as both the former provision under the Income Tax Assessment Act 1936 and the current provision under the ITAA 1997 both use the term 'in consequence of' in the same manner.

In paragraph 5 of TR 2003/13 the Commissioner states:

.... a payment is made in respect of a taxpayer in consequence of the termination of the employment of the taxpayer if the payment 'follows as an effect or result of' the termination. In other words, but for the termination of employment, the payment would not have been made to the taxpayer.

In this case, it was agreed under the Deed of Release that your employment would be terminated on or about DDMMYY and a retrenchment payment will be paid to you in addition to any unused annual and long service leave.

Therefore, it is accepted that the payment made to you was in consequence of the termination of your employment.

Requirement 2 - Dismissal from employment

The Commissioner's view is stated in paragraph 18 of TR 2009/2:

Dismissal is a particular mode of employment termination. It requires a decision to terminate the employment at the employer’s initiative without the consent of the employee. This stands in contrast to the employment that is termination at the initiative of the employee…

At paragraph 20 of TR 2009/2, the Commissioner further states:

A dismissal can still occur even where an employee has indicated they would be interested in having their employment terminated, provided that the final decision to terminate employment remains solely with the employer.

Overall, the evidence points to the fact that your termination of employment was initially triggered by the decision of your employer to relocate. You clearly indicated to management that you were not prepared to be employed at the new location due to the extra travelling time which would also impact on your family obligations.

Had you been agreeable to relocate to the new location a position with substantially the same duties would have been available to you.

There is no evidence that your contract of employment contains an express provision that restricts your workplace to the original location.

You and your employer mutually agreed that your employment would be terminated effective DDMMYY You were also offered an incentive to remain for a maximum of three extra months to assist staff with any relocation and restructure issues.

As such, a dismissal did not occur as the decision to terminate employment was not at the Employer’s initiative without the consent of the Taxpayer. This requirement is not considered to be met.

Requirement 3 - Position genuinely redundant

Paragraph 25 of TR 2009/2 states:

An employee’s position is redundant when an employer determines that it is superfluous to the employer’s needs and the employer does not want the position to be occupied by anyone. Accordingly, it is fundamentally the employer's decision that a position is redundant. On occasion the decision may be unavoidable due to the circumstances surrounding the employer's operations.

In your case your employer was relocating. Due to the increased travel time this would impose on you plus the negative impact it would have on your family life, you were not willing to relocate on a permanent basis and advised this to your employer.

At this time your employer was also undergoing an organisational restructure which included eliminating the level of management directly above you.

The Finance Director of your employer advises:

● that your management level was not eliminated following your termination of employment.

● At all times the employer has required an employee to perform the role previously performed by you.

● The employer recruited a Human Resources Manager prior to your employment ceasing to perform substantially the same duties previously performed by you. This position is on-going.

● The position supervises substantially the same employees/roles you supervised prior to your termination.

● That your assertions re your employer’s current Human Resources Manager performing only 8 out of 17 tasks allegedly performed by you are rejected.

The duties of the position were not superfluous to the employer’s needs and this is illustrated by a Human Resources manager being recruited prior to your termination to perform substantially the same duties that were previously performed by you.

In addition, it is fundamentally the employer’s decision whether a position is redundant. In this case the employer did not accept that your role was genuinely redundant.

The requirement is therefore not met.

As all of the requirements under subsection 83-175(1) have not been satisfied, no part of the payment will be a genuine redundancy payment.

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