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Edited version of your private ruling
Authorisation Number: 1012609293665
Ruling
Subject: Genuine redundancy
Question
Will the tax treatment of your genuine redundancy payment be impacted by future re-employment with your previous employer?
Answer
No
This ruling applies for the following period:
Year ending 30 June 2014.
The scheme commenced on:
1 July 2013.
Relevant facts and circumstances
During the 2013-14 income year you were advised that your position with your employer (the Employer) was no longer required and your employment was terminated by reason of redundancy, effective on that day.
According to your employment separation certificate, you were paid the following amounts:
Description |
Amount |
Redundancy |
A |
In lieu of notice |
B |
Unused annual leave |
C |
Unused long service leave |
D |
Approximately 10 months after your dismissal the Employer contacted you advising they were planning on submitting a bid for new work and asked whether you would be interested in working for them on a short term assignment.
You have provided copies of various email correspondence between the Employer and yourself regarding your potential re-engagement.
If the Employer is successful with the bid, they will employ you on a casual basis.
They have advised you to obtain advice as to any tax implications arising from your re-engagement with them, namely, whether the tax treatment of your genuine redundancy payment will be impacted.
You have confirmed that no arrangement existed at the time of your dismissal between the Employer and yourself, or between the Employer and another person, to re-employ you after your dismissal.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 83-175.
Income Tax Assessment Act 1997 Paragraph 83-175(2)(c).
Reasons for decision
Summary
Provided there was no arrangement at the time of your dismissal between yourself and the employer to reemploy you after your dismissal, undertaking casual work for your previous employer in future will not impact on the tax treatment of your genuine redundancy payment.
Detailed reasoning
Genuine redundancy
A payment made to an employee is a genuine redundancy payment (GRP) if it satisfies all the conditions set out in section 83-175 of the Income Tax Assessment Act 1997 (ITAA 1997). This section states:
(1) A genuine redundancy payment is so much of a payment received by an employee who is dismissed from employment because the employees 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)).
In this case, there is no dispute as to the correct treatment of your redundancy payment. It is accepted that it did satisfy the requirements of a genuine redundancy payment. Therefore, the main issue is whether your potential future re-engagement with your previous employer will impact on the requirement in paragraph 83-175(2)(c) of the ITAA 1997, stated above.
You have confirmed that at the time of your dismissal there was no arrangement in place between you and your employer, or your employer and another person, to employ you after the dismissal. As such, paragraph 83-175(2)(c) of the ITAA 1997 remains satisfied. This is the case even though your potential re-engagement will occur within twelve months of dismissal as the key issue is concerned with an 'arrangement' existing at the time of dismissal, not the actual undertaking of work for that employer post dismissal.
Therefore your potential re-engagement with your previous employer will not impact on the tax treatment of your genuine redundancy payment.