| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of your written advice
Authorisation Number: 1012788812322
Ruling
Subject: Employment termination payments
Question
Does a payment to an employee whose termination date occurred after their 65th birthday satisfy section 83-175 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
No
This ruling applies for the following period
Income year ending 30 June 2015
The scheme commenced on
1 July 2014
Relevant facts and circumstances
During the 2013-14 income year an employer, (the Employer) offered a voluntary redundancy to an employee (the Employee).
The letter offering the voluntary redundancy advised that if the Employee accepted, the Employer could process the redundancy immediately, or the Employee could negotiate a mutually agreeable separation date.
One week later, the Employee accepted the offer of redundancy and agreed to postpone the separation for several weeks.
Subsequently, the Employee turned 65.
One day later, the Employee's employment was terminated as previously agreed with the Employer.
Several days later, the Employer made a termination payment to the Employee.
As a result of efficiencies across the Employer's organisation, the redundancy would be genuine for tax purposes.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 83-175.
Income Tax Assessment Act 1997 Subsection 83-175(2).
Reasons for decision
Summary
For the purposes of section 83-175 of the ITAA 1997, a person is dismissed from employment when all employment with the relevant employer is severed. As this occurred after the Employee turned 65, all the conditions in section 83-175 of the ITAA 1997 are not satisfied in this case.
Consequently, a payment made to the Employee in consequence of the termination of their employment is not a genuine redundancy payment for the purposes of section 83-175 of the ITAA 1997
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 ITAA 1997.
Relevantly, subsection 83-175(2) of the ITAA 1997 states:
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 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 the case may be); …
'Dismissal' from employment
The term 'dismissal' is not defined in the ITAA 1997 therefore, consistent with basic principles of statutory interpretation, its meaning must be determined according to the ordinary meaning of the word, having regard to the context in which it appears.
The requirements to be satisfied before any payment made to a person whose employment is terminated qualifies for treatment as a genuine redundancy payment under section 83-175 of the ITAA 1997 are considered by the Commissioner in Taxation Ruling TR 2009/2 (TR 2009/2). In accordance with paragraph 16 of the TR 2009/2, dismissal from employment occurs when all employment with the employer is severed.
Based on the above, the Employee was dismissed when their employment was terminated during the 2014-15 income year. As this was after the Employee turned 65, the condition in paragraph 83-175(2)(a) of the ITAA 1997 is not satisfied.
As all the conditions set out in section 83-175 of the TAA 1997 are not satisfied, a payment made to the Employee in consequence of the termination of their employment is not a genuine redundancy payment for the purposes of section 83-175 of the ITAA 1997.