Edited version of your private ruling

Authorisation Number: 1012452807404

Ruling

Subject: Genuine redundancy

Question:

Is any part of the redundancy payment you received on the termination of your employment after your 65th birthday, exempt from tax as a tax-free part of a genuine redundancy payment in accordance with section 83-170 of the Income Tax Assessment Act 1997?

Answer:

No.

This ruling applies for the following period:

Year ended 30 June 2012.

The scheme commenced in:

The income year beginning 1 July 2011.

Relevant facts and circumstances:

You commenced employment with the employer several years ago.

You reached age 65 during the relevant income year. Several months after your 65th birthday, you accepted a voluntary redundancy from the employer. The termination of your employment occurred on a termination date late in the relevant year.

Your entitlements under the voluntary redundancy package you received from the employer were detailed in a letter sent to you on the next day after the termination date. These entitlements included a voluntary redundancy (VR) payment. The letter stated that your entitlements, which were paid to you on the date of this letter, were calculated up to the termination date, which was your last day of service with the employer. The letter also stated that the entire VR payment was a non-taxable component with no ETP component, and that no tax was withheld.

A PAYG Payment Summary-Individual Non-Business was issued by the employer for the subsequent income year. The VR payment was disclosed at lump sum payment label D on this original PAYG payment summary.

Late May in the subsequent year you received a letter from the employer concerning the VR payment. In the letter you were informed that an error was made in calculating the tax withheld from the payment, given that you were over age 65 when the payment was made. The employer further advised that this error in respect of the payment may result in an underpayment of tax at the end of the subsequent income year. The letter advised the amount of the underpayment of tax on your entitlements, and stated that the Australian Taxation Office had been advised of this error.

An amended PAYG Payment Summary-Individual Non-Business for the subsequent income year and an Amended PAYG Payment Summary-Employment Termination Payment were subsequently issued by the employer early August in the subsequent year. The payment summaries were accompanied by a letter from the employer, which stated that these payment summaries replaced any other payment summaries you may have already received from the employer for this income year.

The amended PAYG Payment Summary-Individual Non-Business showed that the VR payment was removed from lump sum payment label D, and that this lump sum payment label was left blank. The other amounts shown on the original PAYG payment summary remained unchanged.

The Amended PAYG Payment Summary-Employment Termination Payment shows the date of the VR payment as the termination date. The amended payment summary further shows the entire payment as the taxable component of an employment termination payment with no tax-free component, and that no tax was withheld from the payment. The amended payment summary also shows that the payment is not a transitional termination payment or a death benefit, and that the payment was not related to a prior payment made in an earlier income year for the same termination of employment.

You believe you are being discriminated against on the basis of 'age' and you have approached another government agency about this matter.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 83-170,

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 Subsection 83-175(3),

Income Tax Assessment Act 1997 Subsection 83-175(4),

Income Tax Assessment Act 1997 Subsection 995-1(1) and

Age Discrimination Act 2004 Section 40.

Reasons for decision

Summary

You were over age 65 at the time your employment was terminated by the employer, and have not satisfied the age-based limit prescribed in the legislation.

The Commissioner has no discretion to waive this requirement. The age-based limit is in direct compliance with a taxation law.

Accordingly the termination of your employment after your 65^th birthday does not satisfy all the requirements of a genuine redundancy payment (GRP). Therefore, the redundancy payment you received from the employer is not a GRP. Consequently, no part of the payment is exempt from tax as the tax-free part of a GRP.

Detailed reasoning

Genuine redundancy payment

For any part of the voluntary redundancy (VR) payment to qualify as a genuine redundancy payment (GRP), all the conditions set out in section 83-175 of the Income Tax Assessment Act 1997 (ITAA 1997) must be satisfied.

Subsection 995-1(1) of the ITAA 1997 states:

genuine redundancy payment has the meaning given by section 83-175.

Section 83-175 of the ITAA 1997 applies to payments that are made to an employee whose employment is terminated after 30 June 2007. Section 83-175 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 employees 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)).

All of the requirements of section 83-175 of the ITAA 1997 must be satisfied for a payment to qualify as a GRP. Taxation Ruling TR 2009/2 (TR 2009/2) entitled Income tax: genuine redundancy payments, outlines the requirements which must be satisfied before any payment made to a person whose employment is terminated qualifies for treatment as a GRP under section 83-175 of the ITAA 1997.

Age-based limits under subsection 83-175(2) of the ITAA 1997

Your employment with the employer was terminated late in the relevant year. As such, the termination of your employment occurred several months after your 65^th birthday, which occurred during the relevant income year. You were over age 65 when you ceased your employment and received the VR payment.

As noted above, paragraph 83-175(2)(a) of the ITAA 1997 prescribes that the employee must be dismissed before the earlier of:

· the day he or she turned age 65; (emphasis added) or

· 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 applicable).

There is no provision in either section 83-175 or any other provision of the ITAA 1997 which gives the Commissioner the power to exercise a discretion to waive the age-based limit prescribed in paragraph 83-175(2)(a). The Commissioner can only exercise a discretion when he is given that power under a law he administers.

The legislation itself is quite specific. Paragraph 83-175(2)(a) of the ITAA 1997 provides that you must be less than age 65 at the time of your dismissal, for the VR payment to qualify as a GRP.

This provision does not contain a discretion that can be exercised by the Commissioner to waive this requirement.

You state that the compulsory retirement age was abolished both in the state in which you live and federally, and that you could have chosen to continue to work for several more years.

However, the abolition of the compulsory retirement age in both federal and state jurisdictions does not alter the fact that the legislation specifies that you must be less than age 65 at the time your employment was terminated, for your VR payment to qualify as a GRP.

Further, you being able to choose to continue your employment with the employer for several more years after your 65^th birthday, is a matter which cannot be taken into account under paragraph 83-175(2)(a) of the ITAA 1997.

As discussed above, the Commissioner cannot waive the age-based requirement under paragraph 83-175(2)(a) of the ITAA 1997, because no such discretionary provisions exist in the legislation. Put simply, the Commissioner has no discretion to waive this specific requirement.

Your were not dismissed by the employer before your 65^th birthday. Rather, you were dismissed after your 65^th birthday. In light of these facts, you have not satisfied the requirement under paragraph 83-175(2)(a) of the ITAA 1997, and the Commissioner has no discretion to waive this requirement of the legislation.

Age-based limits and alleged age discrimination

The Age Discrimination Act 2004 (ADA) provides that it is unlawful to discriminate against a person on the ground of the person's age in respect of several matters.

These matters include the employment and related matters listed in Division 2 of Part 4 of the ADA (Discrimination in work), and the matters listed in Division 3 (Discrimination in other areas) of Part 4 (Unlawful Age Discrimination) of the ADA.

However, we draw your attention to the general exemptions that are listed in Division 4 of Part 4 of the ADA, and in particular section 40 of the ADA, which provides for an exemption from the application of Part 4 in relation to taxation laws.

Section 40 of the ADA states that:

This Part does not make unlawful anything done by a person in direct compliance with a taxation law (within the meaning of the Income Tax Assessment Act 1997).

In the context of section 40 of the ADA, the application of paragraph 83-175(2)(a) of the ITAA 1997 in this situation is in direct compliance with a taxation law within the meaning of the ITAA 1997, i.e. section 83-175 of the ITAA 1997. By not waiving the age-based limit that is prescribed in paragraph 83-175(2)(a), the Commissioner is directly complying with the requirements of the relevant taxation laws in this case.

Therefore the contention that the tax treatment of the VR payment is discriminatory on the basis of age cannot be accepted. In this case, section 40 of the ADA operates to provide a general exemption from Part 4 of the ADA in relation to the administration of the taxation laws by the Commissioner in respect of the payment.

As such, the application of paragraph 83-175(2)(a) of the ITAA 1997 in relation to the payment does not represent discrimination on the basis of 'age'.

The payment is not a GRP under sections 83-170 and 83-175 of the ITAA 1997

As noted above, all of the conditions set out in section 83-175 of the ITAA 1997 must be satisfied for the VR payment to qualify as a GRP. In this instance, because you were over age 65 at the time your employment was terminated, the requirement under paragraph 83-175(2)(a) of the ITAA 1997 has not been satisfied.

Accordingly, the termination of your employment after your 65th birthday does not satisfy all the requirements of a GRP prescribed in section 83-175 of the ITAA 1997.

Therefore, the VR payment you received does not qualify as a GRP under section 83-175 of the ITAA 1997. Consequently, no part of the payment is exempt from tax as the tax-free part of a GRP under section 83-170 of the ITAA 1997..