1051998060322 | Legal database

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Edited version of private advice

Authorisation Number: 1051998060322

Date of advice: 30 June 2022

Ruling

Subject: Genuine redundancy payment.

Question 1

Is your payment in lieu of notice part of a genuine redundancy payment under section 82-130 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Question 2

Is your payment in lieu of notice an employment termination payment (ETP) under section 82-130 of the ITAA 1997?

Answer

Yes

This ruling applies for the following period:

Year ended 30 June 2022

The scheme commences on:

1 July 2021

Relevant facts and circumstances

1. On xxxxx you commenced employment.

2. On xxxxxx you commenced a role as Business Development Manager.

3. The Contract of Employment, signed by you, states as follows:

You have provided relevant clauses of your agreement which detail the obligations of the parties.

4. You provided a copy of your Position Description.

5. Your employment was terminated on xxxx. You provided a copy of the letter.

6. You provided a copy of the termination payment.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 82-130

Income Tax Assessment Act 1997 section 82-135

Income Tax Assessment Act 1997 section 82-140

Reasons for decision

1. An ETP under section 82-130 of the ITAA 1997 is a payment received by you:

• in consequence of termination of your employment;

• it is received no later than 12 months after that termination; and

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

2. In your case, your payment of $X in lieu of four weeks notice was made in connection with the termination of your employment on DD MMM 20XX. The payment was made on DD MMM 20XX, within 12 months of termination of your employment. The payment was not any of those mentioned under section 82-135 of the ITAA 1997. Therefore, the payment of $X made to you on DD MMM 20XX is an ETP.

3. You contend that the ETP should be treated as a tax-free redundancy payment under paragraph 64 of Taxation Ruling TR 2009/2: Income tax: genuine redundancy payments which states (emphasis added):

'64. A payment in lieu of notice can be a genuine redundancy payment provided that such a payment would not be expected on voluntary termination.'

4. However, your employment contract states, on termination of your employment that:

Your employment may be terminated by yourself or the Company by the giving of notice as prescribed under the Act or by one month notice in writing, or by the Company without notice on the payment of one month's wage in lieu of notice.

5. As your employment contract specifies that you would be paid one month's wage in lieu of notice where your employment is terminated by your Employer without notice, it cannot be said that your payment in lieu of notice was not expected on your voluntary termination either by you or your Employer.

Conclusion

6. Therefore, paragraph 64 of TR 2009/2 does not apply in your case and your employer correctly treated your payment in lieu of notice as an ETP as the payment was to be expected on voluntary termination of your employment.

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