Edited version of your written advice

Authorisation Number: 1013036052322

Date of advice: 17 June 2016

Ruling

Subject: Genuine redundancy payment

Question

Is the payment you received for unused annual leave and unused long service leave upon the ceasing of your employment with the Employer a genuine redundancy payment in accordance with 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 2016

The scheme commences on:

1 July 2015

Relevant facts and circumstances

You signed an employment contract with the Employer

A letter from the Employer confirms that your employment contract (the Contract) had an agreed end date ( End Date).

On a date before the End Date you received a letter (the Letter) from the Employer stating that as per the Contract your employment with the Employer would end on the End Date.

In the Letter you were advised that as a consequence of your Contract coming to an end:

• you would be paid amounts in relation to any accrued and untaken annual and long service leave entitlements; and

• If as at the End Date you remain employed and will have completed at least X years of continuous service but less than XX years you will receive a pro rata amount of long service leave.

The Employer also stated in the Letter:

(a) it had decided to pay pro rata long service to those employees whose contracts terminated on the End Date and had completed at least X years and less than XX years service; and

(b) though the pro-rated long service payment was not a legal requirement the Employer would pay you this benefit as an acknowledgement of your service.

The Contract, based on the information provided , shows your employment would cease on the End Date unless terminated early or offered a new contract

Your employment ended in accordance with the ending of the Contract and no further contract was offered to you.

The Employer classified your termination of employment as an end of contract termination.

On termination of employment you received a lump sum payment for unused annual leave and unused long service leave which were paid on a day after the End Date.

The payslip and other documentation provided in relation to the unused annual leave and unused long service leave show they were not taxed as a payment made in connection with a genuine redundancy payment.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 82 -135

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 Subsection 83-175(4)

Reasons for decision

Summary

Your employment was terminated at the end of a contractually specified term. Therefore, your dismissal was not due to genuine redundancy. Further, it should be noted that payments for unused annual leave and unused long service leave are precluded from being a genuine redundancy payment (GRP).

Detailed reasoning

Subsection 83-175(1) of the Income Tax Assessment Act 1997 (ITAA 1997) defines the meaning of a GRP and states:

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 the dismissal.

However, before a payment that meets the basic redundancy requirement in subsection 83-175(1) of the ITAA 1997 qualifies as a genuine redundancy payment, all other conditions in section 83-175 of the ITAA 1997 must be met.

Relevantly, subsection 83-175(2) of the ITAA 1997 provides that for a payment to be a GRP, the employee must be dismissed before the earlier of the following:

• turning 65 years of age (or any earlier age of compulsory retirement for the particular position in question), or

• before the end of a fixed period of employment.

The Commissioner has issued Taxation Ruling TR 2009/2 (TR 2009/2) which outlines the requirements to 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. At paragraphs 36 and 37 of TR 2009/2 the Commissioner considers payments made at the end of a fixed period of employment and states:

36. Under subparagraph 83-175(2)(a)(ii), a payment made at the end of a fixed period of employment cannot normally be a genuine redundancy payment.

37. However, some 'rolling' fixed-term contracts may, as a matter of fact, establish an ongoing employment relationship. The reference to 'rolling' contracts contemplates the situation where fixed-term contracts are renewed on one or more occasions following the expiry of the contracted term. The completion of a stipulated term in these circumstances does not necessarily disqualify a payment made at the end of the period from being a genuine redundancy payment. It is therefore possible that a genuine redundancy payment may be paid in these types of cases. However, where a contract is not renewed at the end of a contractually stipulated term, evidence is required to displace the express terms of the contract and establish an ongoing employment relationship. This is likely to be the exception rather than the rule.

In this case, your employment was terminated at the end of a contractually stipulated term. As such, all the conditions of section 83-175 of the ITAA are not met. Therefore, your employment was not terminated as a result of genuine redundancy.

Further to the above it should also be noted that subsection 83-175(4) of the ITAA 1997 states

A payment is not a genuine redundancy payment if it is a payment mentioned in section 82-135 (apart from paragraph 82-135(e))

As unused annual leave and unused long service leave are covered by section 82-135 of the ITAA 1997 ,specifically sub paragraphs 82-135 (c) and (d) respectively, it follows that the payments you received are not GRPs.

Accordingly, as the above payments are not GRPs nor employment termination payments they do not receive concessional tax treatment and the facts provided show that they have been correctly taxed by the Employer.