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Edited version of your written advice
Authorisation Number: 1013121231242
Date of advice: 7 November 2016
Ruling
Subject: Genuine redundancy payments - 'Years of service'
Question
Will prior years of service which are not recognised by your former employer, be used for the calculation of the tax-free component of a genuine redundancy payment (GRP)?
Answer
No
This ruling applies for the following periods
The income year ended 30 June 20YY
The scheme commences on
1 July 20XX.
Relevant facts and circumstances
You commenced employment with your former employer (the Employer) several years ago.
Your employment with the Employer was terminated by reason of redundancy in the 20XX-YY income year.
The 'Years of service' period for the purpose of calculating the tax-free amount of your GRP was calculated by the Employer as being a period which starts at the commencement of your employment with a related employer and ends on the termination date.
The employer did not take into account other periods of employment which you believe should have been included in the relevant years of service.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 83-170
Income Tax Assessment Act 1997 Subsection 83-170(2)
Income Tax Assessment Act 1997 Subsection 83-170(3)
Reasons for decision
Summary
In accordance with subsection 83-170(3) of the ITAA 1997, the 'Years of service' is defined as the number of whole years in the period of employment to which the GRP relates to.
In this case, that period of employment is determined by the Employer to be a period which starts at the commencement of your employment with a related employer and ends on the termination date.
Detailed Reasoning
Tax-free amount of a genuine redundancy payment
Subsection 83-170(2) of the ITAA 1997 provides that so much of the GRP 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.
In accordance with subsection 83-170(3) of the ITAA 1997, the formula for working out the tax-free amount is:
Base amount + (Service amount × Years of service)
For the purposes of subsection 83-170(3) of the ITAA 1997, the Base amount for the 2015-16 income year is $9,780, and the Service amount is $4,891.
Years of service means the number of whole years in the period, or sum of periods, of employment to which the payment relates.
Generally, the years of service will be the persons most recent continuous period of employment with the relevant employer making the GRP. Non-continuous periods of employment with the employer or a related employer can be taken into consideration in calculating the years of service provided the GRP is made in recognition of that earlier employment and/or related employment.
In your case, the Employer has determined that period of employment to which the GRP relates to is XX whole years.
Accordingly, the tax-free part of the genuine redundancy payment that you received from the Employer has been calculated and advised.