Edited version of your written advice

Authorisation Number: 1051405287506

Date of advice: 26 September 2018

Ruling

Subject: Genuine redundancy

Question

Are the two payments the Taxpayer received from a former employer and from a redundancy trust genuine redundancy payments for the purposes of section 83-175 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No

This ruling applies for the following period:

Income year ended 30 June 2017

The scheme commences on:

1 July 2016

Relevant facts and circumstances

The Taxpayer commenced employment with the Employer in the 2013-14 in a position for a construction project (the Project).

The Taxpayer’s employment contract stipulated that employment with the Employer was specifically in relation to the Project, and would be for a term commencing on a date in the 2013-14 income year and continuing “until released by (the Employer), when [the Taxpayer’s] role is no longer required.”

During the period of employment, the Employer made payments to a redundancy trust on the Taxpayer’s behalf.

The employment contract stated that the monies paid into the Trust would be available after the completion of employment (i.e. have been made redundant) and upon making application to the Trust.

In a letter made during the 2016-17 income year (the letter) the Employer advised the Taxpayer that the Taxpayer’s employment would be terminated on specified date in the 2016-17 income year. This was specified as being “due to the completion of parts of the scope of works on (the Project).”

In the letter it also stated that the Taxpayer’s entitlements for accrued annual leave plus leave loading, any accrued personal leave and final monies for work performed would be paid.

At this time, the Taxpayer was issued with a ‘Certificate of Service.’”

On the specified date the Taxpayer’s employment with the Employer was terminated.

Following the termination, the Taxpayer received a termination payment which included a payment from the Trust and a further amount for termination of employment from the Employer (together, the Payments).

The Payments were not in lieu of superannuation benefits to which the Taxpayer may have been entitled.

The termination of the Taxpayer’s employment was at arm’s length.

At the time of the termination, there was no arrangement between the Employer and the Taxpayer, or between the Employer and another person, to employ the Taxpayer after the termination.

In the 2016-2017 income year, the Taxpayer was issued with a letter from the Employer which stated that the Taxpayer was “made redundant … due to the position filled becoming redundant.”

The Taxpayer’s is less than 55 years of age.

Relevant legislative provisions

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(3)

Income Tax Assessment Act 1997 Subsection 83-175(4)

Reasons for decision

Summary

The Taxpayer’s employment was terminated at the end of a contractually specified term. Therefore, the Taxpayer’s dismissal was not due to genuine redundancy.

Detailed reasoning

Subsection 83-175(1) of the 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.

..

38. In some cases, particularly those involving multi-disciplinary project-based work, an employee's period of service may be determined by reference to the achievement of a particular outcome rather than a specified period of time. The employee's period of service in these circumstances concludes on the achievement of that outcome.

In relation to project based work, TR 2009/2 provides an example at paragraphs 148 to 154, which states:

148. Buildcorp makes contributions to an industry trust on behalf of its workers to cover the company for future termination payments (other than unused annual leave payments) it might be required to make under industry awards. The workers are all employed on a daily hire basis.

149. Buildcorp has a major construction contract to build an office block. Buildcorp's employees, its subcontractors and their employees have all been advised that they can expect to be employed on the project for at least six months, depending on their trade or other qualifications.

...

152.... if the workers had all completed their allotted tasks in keeping with the mutual intentions of the parties, any payments accruing on their termination of employment would not be eligible to be genuine redundancy payments. In these circumstances, the employees are terminated at the expiry of a fixed period of employment.

In this case, the Taxpayer received an offer of employment from the Employer to work on a specific project. It is clear from the contract of employment provided that the offer of employment is tied exclusively to that specific project and employment would expire on the completion of the particular project. This was stated in the sample employer contract:

Subject to your acceptance of this Offer of Employment, your engagement on (the Project) will commence on (date) and continue until released by (the Employer), when your role is no longer required.

In this case, as stated in the letter from the Employer, the Taxpayer’s employment was terminated “due to the completion of parts of the scope of works on (the Project).”

As such, the two payments were made to the Taxpayer upon the completion of their scope of work. That is, the payments were made in accordance with the employment contract which limits the period of assignment to the present project.

Therefore, the Payments, comprising the payment from the Trust and the employment termination payment from the Employer, were made at the end of a fixed period of employment as specified under subparagraph 83 175(2)(a)(ii) of the ITAA 1997. Therefore, neither payment is a genuine redundancy payment in accordance with section 83-175 of the ITAA 1997.

As such, one of the main conditions of section 83-175 of the ITAA was not met. Therefore, the Taxpayer’s employment was not terminated as a result of genuine redundancy, and the Payments are not redundancy payments for the purposes of section 83-175 of the ITAA 1997.