Edited version of private advice

Authorisation Number: 1051540896916

Date of advice: 4 July 2019

Ruling

Subject: Genuine redundancy

Question

Is the whole amount of a settlement payment ( the Payment) made after your employment was terminated with the Employer a genuine redundancy payment in accordance with section 83-175 (1) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes

This ruling applies for the following period:

Year ended 30 June 20ZX

The scheme commences on:

1 July 20ZY

Relevant facts and circumstances

Your date of birth is a date before 1980.

You were employed with the Employer.

You were a white collar employee whose employment was terminated because you refused to undertake duties that were not consistent with your areas of expertise and experience.

You commenced fulltime employment with another employer in late 19XX.

The Employer is the successor of various corporate entities who have, since at least late 19XX operated the same business in which you were employed.

You were employed in a number of what was referred to during the court proceedings as "white collar positions."

Around 20YY you were promoted and a new contract of employment relating to that position was entered into.

In late 20ZZ, a further contract of employment was made between yourself and the Employer's immediate corporate predecessor in the business. The contract includes clauses dealing with termination of employment for reasons other than redundancy (one month's notice was required) and a redundancy package in the event of redundancy of two months' notice or payment in lieu of notice together with four weeks redundancy pay for each year of service and sick leave entitlement capped at 60 days.

In late 20ZZ your employment was "transferred" to the Employer after some acquisitions. The terms of your contract were the same terms that were negotiated in late 20ZZ.

In early 20XY you were underutilised in your role and you agreed with your employer that you would take on other duties.

In early 20XZ the Employer terminated your employment after the Employer had required you to take on a range of duties to be shared with another employee. As a consequence of your refusal to accept the additional duties you were dismissed from your employment.

In early 20XZ you lodged a general protections application with the relevant Commission.

In your general protections application to the Relevant Commission the remedy that you were seeking was:

1.     Payment of ongoing loss of income, penalties and compensation for pain and suffering

2.     Payment of your redundancy entitlement arising from your termination.

After failing to reach agreement in the Relevant Commission the matter was lodged with the Relevant Court of Australia.

You were unsuccessful in your claims that the Employer had dismissed you from your employment in contravention of ss340 and 352 Fair Work Act 2009 (Cth) (FW Act) but you were successful on a contractual claim that you were entitled to a retrenchment payment within the meaning of a clause of your contract of employment.

In early 20ZY the Judgement was delivered that :

a)     The Employer pay the applicant within 30 days a redundancy payment of an amount less tax required by law

b)     The Employer remit any tax deducted pursuant to the above order to the Australian Taxation Office and provide proof of same to the solicitors for the Employer

c)     There be liberty to apply in respect of the implementation of these orders.

In his findings as detailed in the Judgement, the Judge stated that he was satisfied that there was not enough work in the position of senior buyer and in these circumstances there can be no dispute that the applicant's positon of senior buyer was redundant.

The Employer appealed the decision and in early 20ZX the Relevant Court dismissed the appeal.

You have provided a PAYG Payment Summary - employment termination payment dated early that details the taxable component and tax withheld.

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 paragraph 83-175(2)(a)

Income Tax Assessment Act 1997 subparagraph 83-175(2)(a)(ii)

Income Tax Assessment Act 1997 subsection 83-175(2)(b)

Income Tax Assessment Act 1997 subsection 83-175(2)(c)

Income Tax Assessment Act 1997 subsection 83-175(3)

Summary

Detailed Reasoning

Summary

The finding of the Judgment was that your employment was terminated due to your position becoming redundant. Therefore, the Payment you received from the Employer on the termination of employment is a genuine redundancy payment.

Detailed Reasoning

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

Meaning of genuine redundancy

The requirements to be satisfied before any payment made to a person whose employment is terminated qualifies for treatment as a genuine redundancy payment under section 83-175 of the ITAA 1997 are discussed in Taxation Ruling TR 2009/2 Income tax: genuine redundancy payments (TR 2009/2).

With regard to the first requirement set out in subsection 83-175(1) of the ITAA 1997, the Commissioner considers that there are four necessary components within this requirement:

·                 the payment must be received in consequence of an employee's termination;

·                 the termination must involve the employee being dismissed from employment;

·                 dismissal must be caused by the redundancy of the employee's position; and

·                 the redundancy payment must be made genuinely because of a redundancy.

Each of these requirements will be considered in turn below.

Payment must be received 'in consequence of' an employee's termination

From the facts of this case, it is accepted that the payment was received by you in consequence of the termination of their employment.

Termination must involve the employee being 'dismissed' from employment

The term 'dismissal' is not defined in the ITAA 1997 therefore, consistent with basic principles of statutory interpretation, its meaning must be determined according to the ordinary meaning of the words, having regard to the context in which they appear.

Accordingly, the Commissioner's view, as stated in TR 2009/2, is that 'dismissal' means a decision to terminate employment at the employer's initiative without the 'consent' of the employee. This stands in contrast to employment that is terminated at the initiative of the employee, for example in the case of resignation.

Subject to the exception recognised in paragraph 17 of TR 2009/2, the loss of a particular position with an employer is not a dismissal for the purposes of subsection 83-175(1) of ITAA 1997 unless all employment with the employer is severed. The Commissioner's view is that a genuine redundancy payment can only arise where there is no suitable job available for the employee with the employer, meaning that he or she must therefore be dismissed.

The facts support the contention that you were dismissed from all employment with the Employer.

Redundancy

Section 83-175 of ITAA 1997 further requires that the dismissal be caused by redundancy of the employee's position, and not for some other reason.

As is the case in determining if there is a dismissal, the reason for a dismissal is to be established in light of the facts and circumstances of each case. The redundancy of the relevant position must be the prevailing or most influential reason for the dismissal if there is more than one contributing cause.

In the present case, the findings in the Judgement was that that there was not enough work in the position and in these circumstances there can be no dispute that your position was redundant and your dismissal was due to redundancy.

'Genuine' redundancy

Contrived cases of redundancy will not meet the conditions in section 83-175 of ITAA 1997. Whether a redundancy is 'genuine' is determined on an objective basis.

The fact that an employer and employee have an understanding that a payment on termination is caused by redundancy or that the employer treats the payment as a redundancy payment for tax purposes does not of itself establish genuine redundancy.

It is accepted that this was not a contrived case of redundancy.

Further conditions for a genuine redundancy payment

In addition to the basic requirement for a genuine redundancy payment found in subsection 83-175(1) of ITAA 1997 the further conditions for genuine redundancy payment treatment in subsections 83-175(2) and (3) of ITAA 1997 requires that:

·        the dismissed employee is not older than specified age limits. (Under paragraph 83-175(2)(a) of ITAA 1997) an employee must be less than 65 years old at the time of dismissal for a redundancy payment to qualify as a genuine redundancy payment. However, if the employment of a particular employee would have otherwise terminated at a younger age than 65, the employee must be dismissed before that time. This younger age becomes the employee's age-based limit in these circumstances. )

·        the termination is not at the end of a fixed period of employment

·        the actual amount paid is not greater than the amount that could reasonably be expected had the parties been dealing at arm's length, in the event that the employer and employee are in fact not dealing at arm's length in relation to the dismissal (

·        there is no arrangement entered into between the employer and the employee or the employer and another entity to employ the dismissed employee after the termination; and

·        the payment is not in lieu of superannuation benefits (paragraphs 53 and 54 of TR 2009/2).

It is considered that on the facts presented you meet the requirements of subsections 83-175 (2) and (3) of ITAA 1997 because:

·        You are aged under 65 and your contract did not stipulate an alternate date

·        Your contract for employment did not have an end date and is not for a fixed period of employment

·        There was no evidence to indicate that you would be reemployed

·        The amount you received was determined by the Judgement of the court and in this regard is accepted as arm's length

·        The Judgement specified the amount was for a redundancy benefit and it is accepted it was not in lieu of superannuation benefits.

On the basis of the information provided, it is considered that section 83-175 of ITAA 1997 has been satisfied. Accordingly, the Payment you received on the termination of employment is a genuine redundancy payment.