Edited version of your written advice

Authorisation Number: 1051433360125

Date of advice: 25 October 2018

Ruling

Subject: Genuine redundancy

Question

Does the payment made as a result of a redundancy qualify as a genuine redundancy payment where your client was over 65 years of age at the time of the termination of employment?

Answer

No

This ruling applies for the following period:

Year ending 30 June 2018

The scheme commences on:

mid 2004

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

1. Your client started their role with the employer in June 200X.

2. Your client’s date of birth is X December 19XX.

3. Your client’s whole team was abolished, which included approximately XYZ people.

4. Your client was made redundant in mid 201Y.

5. Your client received an employment termination payment on in June 201Y.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 83-175

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

Age Discrimination Act 2004 Section 40

Reasons for decision

Summary

The redundancy payment does not qualify as a genuine redundancy payment under section 83-175 of the Income Tax Assessment Act 1997 (ITAA 1997). As such, the amount received is considered a taxable component and therefore is included as taxable income in your client’s income tax return.

Detailed reasoning

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 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 employees’ 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 arm’s length the payment does not exceed the amount that could reasonably be expected to be made if the dismissal were at arm’s 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.

Under subparagraph 83-175(2)(a)(i) of the ITAA 1997 your employment must be terminated before you turn 65 years of age. Your client’s employment was terminated in June 2018. They had turned 65 years of age before the date their employment was terminated and as such you did not meet the condition under subsection 83-175(2) of the ITAA 1997.

As mentioned 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 your client has not met one of the conditions under section 83-175 of the ITAA 1997, it is not necessary to discuss whether they meet the other conditions under section 83-175 of the ITAA 1997. Therefore the payment your client received from their employer is not a genuine redundancy payment under section 83-175 of the ITAA 1997.

As the redundancy payment does not qualify as a genuine redundancy payment there is no tax free element. Instead, the entire amount is considered a taxable component and therefore is included as taxable income in your client’s income tax return.

Please note that there is no age discrimination in this case. Section 40 of Division 4 (General Exemptions) of Part 4 (Unlawful Age Discrimination) of the Age Discrimination Act 2004 states:

This part does not make unlawful anything done by a person in direct compliance with a taxation law (within the meaning of the Income Tax Assessment Act 1997).

Further, the Explanatory Memorandum to the Age Discrimination Bill 2003 (which was enacted as the Age Discrimination Act 2004) states in relation to section 40:

Taxation: Distinctions based on age can legitimately feature in a number of ways in taxation legislation including rebates and other concessions. To ensure this flexibility is retained it is appropriate that taxation legislation laws be exempt.