Edited version of your written advice

Authorisation Number: 1012847603381

Date of advice: 27 July 2015

Ruling

Subject: Genuine redundancy payment

Question

Will any part of the employment termination payment that you will receive after age 65 contain a tax-free part of a genuine redundancy payment?

Answer

No.

This ruling applies for the following periods:

2015-16 income year

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You are employed by an employer.

During the relevant income year you received a letter from the employer which advised that you no longer have an ongoing role and are an excess employee from that date. The letter also invited you to accept an offer of voluntary redundancy.

During the relevant income year you accepted the offer of a voluntary redundancy from the employer.

Your last day of service will be during the subsequent income year.

You are over 65 years of age.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 83-175

Income Tax Assessment Act 1997 Paragraph 83-175(2)(a)

Reasons for decision

Summary

The employment termination payment you will receive from the employer will not be a genuine redundancy payment as you are over the age of 65 at the time your employment terminates. The aged-based limit is prescribed in the legislation. The Commissioner has no discretion to waive this requirement.

Detailed reasoning

Genuine redundancy payment

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 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 arms length the payment does not exceed the amount that could reasonably be expected to be made if the dismissal were at arms 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)).

The Commissioner has issued Taxation Ruling TR 2009/2 which outlines the Commissioner's view of the requirements to be satisfied for a payment to qualify as a genuine redundancy payment under section 83-175 of the ITAA 1997.

At paragraphs 34 and 35 of TR 2009/2 it refers to the age-based limits which state:

34. Under paragraph 83-175(2)(a), an employee must be less than 65 years old at the time of dismissal for a redundancy payment to qualify as a genuine redundancy payment.

35. However, if the employment of a particular employee would have otherwise terminated at a younger age than 65, the employee must be dismissed before that time. This younger age becomes the employee's age-based limit in these circumstances

Therefore, under subparagraph 83-175(2)(a)(i) of the ITAA 1997 your employment must be terminated before you turn 65 years of age. As your employment with terminates on dd/mm/yyyy, and you are over age 65 at the time your employment terminates, you do not meet the condition under subsection 83-175(2) of the ITAA 1997.

All conditions set out in section 83-175 of the ITAA 1997 must be met for a payment to be a genuine redundancy payment. As you have not met one of the conditions under section 83-175 of the ITAA 1997, it is not necessary to discuss whether you meet the other conditions under section 83-175 of the ITAA 1997. Therefore, the payment you will receive from the employer will not be a genuine redundancy payment under section 83-175 of the ITAA 1997.

Accordingly, the termination payment you will receive from the employer is not a genuine redundancy payment under section 83-175 of the ITAA 1997.

As mentioned above the aged-based limit is prescribed in the legislation in subparagraph 83-175(2)(a) of the ITAA 1997. It should be noted that this provision does not contain a discretion that can be exercised by the Commissioner to waive this requirement.