Edited version of your written advice

Authorisation Number: 1012902164807

Date of advice: 27 October 2015

Ruling

Subject: Genuine redundancy payment

Question

Is any part of your payment in lieu of notice and your redundancy payment a tax-free part of a genuine redundancy payment?

Answer

Yes.

This ruling applies for the following period

Year ended 30 June 20YY

The scheme commenced on

1 July 20XX

Relevant facts

You are under 65 years of age.

You were employed by the Employer in the 20XX-YY income year.

In a letter from the Employer in the 20XX-YY income year, it is stated that your employment was terminated because your job had been made redundant.

Correspondence from the Employer indicated that you were to receive the entitlements according to your employment contract including a payment in lieu of notice and a gross redundancy payment

A PAYG payment summary - individual non-business for the year ending 30 June 20YY from the Employer shows that you received a gross payment and lump sum payment label D amount. It also shows the total tax withheld from your payment.

You state that you have received payments from the Employer in line with your pay slips. You have provided the latest payslip from the Employer which shows the payments made to you. The amounts made to you were not the same as that in the correspondence from the Employer specified above.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 83-175

Income Tax Assessment Act 1997 subsection 83-170

Reasons for decision

Summary

The payment in lieu of notice and the redundancy payment you received from the Employer in line with your pay slips are genuine redundancy payments. As the total of these payments are below the calculated tax-free amount, the payments are non-assessable and non-exempt income. Accordingly, the payments are not to be included in your income tax return for the 20XX-YY income year.

Detailed reasoning

Genuine redundancy payment

A payment made to an employee is a genuine redundancy payment if it satisfies all of the criteria set out in section 83-175 of the Income Tax Assessment Act 1997 (ITAA 1997) which 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 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);

(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.

(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)).

Subsection 82-135 of the ITAA 1997 includes (among others):

_ superannuation benefits;

_ the payment of a pension or annuity; and

_ unused annual leave (paragraph 82-135(c)) or long service leave payments (paragraph 82-135(d)).

It is recognised that you have been provided with correspondence from the Employer indicating that you were entitled to a payment in lieu of notice and a gross redundancy payment. However, the PAYG payment summary - individual non-business for the year ending 30 June 20YY from the Employer and your payslip indicate that you have received different amounts.

Further, your employment was terminated because your job with the Employer was made redundant.

In this case, it is considered that all the conditions under section 83-175 of the ITAA 1997 have been satisfied. Therefore the payment that you actually received from the Employer, being the amounts specified in your PAYG payment summary - individual non-business for the year ending 30 June 20YY from the Employer and your payslip, is a genuine redundancy payment.

Tax-free amount

Subsection 83-170(2) of the ITAA 1997 provides that so much of the genuine redundancy payment that does not exceed the amount worked out using the formula prescribed in subsection 83-170(3) of the ITAA 1997 is not assessable income and is not exempt income. Any amount in excess of the tax-free amount is taxed as an employment termination payment. The formula for working out the tax-free amount is:

Base amount + (Service amount × Years of service)

Years of service means the number of whole years in the period, or sum of periods, of employment to which the payment relates.

The 'years of service' to which the genuine redundancy payment relates is one whole year of service as the facts provided indicate the payment also relates to your service with the subsidiaries.

The total of your payment in lieu of notice and redundancy payment is below your calculated tax-free amount. Consequently your payment in lieu of notice and your redundancy payment are not required to be included in your income tax return for the 20XX-YY income year.