Edited version of private advice

Authorisation Number: 1051844433022

Date of advice: 2 July 2021

Ruling

Subject: Genuine redundancy payment - job swap

Question 1

With regard to its 'pay as you go' (PAYG) withholding obligations, are the payments as outlined in scenario 1, made by the Employer under its 'Job Swap Scheme', genuine redundancy payments within the meaning of subsection 83-175(1) Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes, they would meet the requirements to be a genuine redundancy. The Employer will be required to withhold tax in accordance with section 12-85 of the Taxation Administration Act 1953 (TAA) for the amount of the lump sum that is not tax-free.

Question 2

With regard to its PAYG withholding obligations, are the payments as outlined in scenario 2, made by the Employer under its 'Job Swap Scheme', genuine redundancy payments within the meaning of subsection 83-175(1) ITAA 1997?

Answer

Yes, they would meet the requirements to be a genuine redundancy. The Employer will be required to withhold tax in accordance with section 12-85 of the TAA for the amount of the lump sum that is not tax-free.

Question 3

With regard to its PAYG withholding obligations, are the payments as outlined in scenario 3, made by the Employer under its 'Job Swap Scheme', genuine redundancy payments within the meaning of subsection 83-175(1) ITAA 1997?

Answer

No, they would not meet the requirements to be a genuine redundancy. The Employer will be required to withhold tax in accordance with section 12-85 of the TAA.

This ruling applies for the following period:

1 July 20XX to 30 June 20XX

The scheme commences on:

The scheme has not yet commenced

Relevant facts and circumstances

The Employer is restructuring and reorganising its workforce.

The revised organisational structures result in various positions being identified as redundant.

The relevant employees are covered by an enterprise agreement which stipulates an employment security provision where there will be no forced retrenchments for the life of the agreement.

The agreement to have no forced retrenchments depends on the employee accepting reasonable retraining and re-deployment to suitable alternative employment. An employee whose nominal role has previously been made redundant and who elects re-deployment is placed into a Transition Pool until such time as suitable alternative employment is found.

Upon entry into the Transition Pool an employee may also perform various business tasks not assigned to a specifically defined job profile.

Where the Employer determines that an employee in the Transition Pool is not suited to any available positions, the employee may remain in the Transition Pool to attempt future redeployment or the employee exits the Employer via retrenchment. Should an employee resign whilst in the Transition Pool or from a redeployed role, this is treated as a resignation and the employee will exit the Employer being paid their enterprise agreement or contractual entitlements.

For the purposes of this ruling, an employee whose substantive role has been assessed as redundant but whose employment is not terminated will be referred to as 'excess'.

The Employer is proposing to operate a 'Job Swap Scheme', enabling expressions of interest (EOI) from eligible employees whose roles are not redundant, to voluntarily leave the organisation in circumstances where an 'excess' employee is suitably skilled and qualified to swap into their role.

Eligible employees who apply for retrenchment and have their application approved will receive a termination payment in accordance with the retrenchment clauses of the enterprise agreement.

The number of packages available will not exceed the number of overall positions made redundant by the Employer. That is, for each employee that exits under the Job Swap Scheme, a position in the Employer's organisational structure will be extinguished and overall headcount will reduce by one.

The following three scenarios outline examples of the likely operation of the Job Swap Scheme:

Scenario 1:

•         Employee A and employee B's roles are the same or very similar (eg Manager in Work area 1 and a Manager in Work Area 2).

•         The Manager's position in the Work area 1 is surplus to requirements and employee A's role is made redundant.

•         Employee A is seeking to remain employed with the Employer.

•         However, employee B who is a Manager in Work area 2 is interested in obtaining a voluntary redundancy but is in a position that is operationally required.

•         Employee B lodges an EOI in voluntary retrenchment.

•         Given employee A is performing the same or similar position as employee B albeit in a different Work Area, a job swap can be approved which enables employee A to swap positions with employee B which in turn results in employee B's application for voluntary retrenchment being approved.

•         Employee B separates the business and is paid a retrenchment package.

Scenario 2:

•         Employee A and employee B are in different roles.

•         However, the employees have similar qualifications/skills (eg. a Tax Accountant and a Management Accountant).

•         The Employer has made the decision that the Tax Accountant position is surplus to requirements and employee A is made redundant.

•         Employee A is seeking to remain employed with the Employer.

•         However, employee B is interested in obtaining a voluntary redundancy but is in a position that is operationally required. Employee B lodges an EOI in voluntary retrenchment.

•         Upon assessment, employee A has the qualifications/skills (with reasonable training) to enable a job swap. Employee A swaps positions with employee B and employee B's application for voluntary retrenchment is approved.

•         Employee B exits the business and is paid a retrenchment package.

Scenario 3:

•         Employee A is in the excess employee Transition Pool because their (unrelated) substantive position was made redundant some time ago and Employee A elected redeployment.

•         Employee B is interested in obtaining a voluntary redundancy but is in a position that is operationally required.

•         Employee B lodges an EOI in voluntary retrenchment.

•         Upon assessment, although employee A has not performed in the same or similar role before, the employee has the qualifications/skills (with reasonable training) to enable a voluntary redundancy swap.

•         On this basis, Employee A swaps positions with employee B which in turn results in employee B exiting the organisation and being paid a retrenchment package.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 83-130

Income Tax Assessment Act 1997 section 83-170

Income Tax Assessment Act 1997 section 83-175

Income Tax Assessment Act 1936 Part IVA

Other relevant documents

Taxation Ruling TR 2009/2: Income tax: genuine redundancy payments

Reasons for Decision

Genuine redundancy

A payment made to an employee is a genuine redundancy payment if it satisfies all of the criteria set out in section 83-175 of the ITAA 1997.

In accordance with subsection 83-175(1) of the ITAA 1997, 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.

Paragraph 11 of Taxation Ruling TR 2009/2: Income tax: genuine redundancy payments, outlines the requirements to be satisfied under subsection 83-175(1) of the ITAA 1997. There are four necessary components within this requirement:

•         The payment being tested must be received in consequence of an employee's termination.

•         That termination must involve an employee being dismissed from employment.

•         That dismissal must be caused by the redundancy of the employee's position.

•         The redundancy payment must be made genuinely because of a redundancy.

Further conditions that must also be satisfied before the payment can be treated as a genuine redundancy. Conditions in subsections 83-175(2) and (3) of the ITAA 1997 require that:

•         the dismissed employee is not older than specified age limits

•         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 (paragraph 83-175(2)(c)); and

•         the payment is not in lieu of superannuation benefits.

Based on the above, section 83-175 of the ITAA 1997 requires an employee's position to be made genuinely redundant. And the payment is made to the employee that holds that position.

Application to circumstances

Based on the details outlined by the Employer, they indicate that certain positions are going to be made redundant under a change of structure. To meet the conditions of the enterprise agreement individuals will be offered redeployment where their position is to be made redundant.

The proposed Job Swap Scheme is to allow any eligible employees to express an interest in being considered for a voluntary redundancy for the positions that are going to be made redundant.

The outlined eligibility for the Job Swap Scheme is restricted to those individuals who would be eligible to receive a genuine redundancy as outlined in section 83-175 of the ITAA 1997.

Scenario 1 and scenario 2

Scenario 1 and scenario 2 as outlined by the Employer both involve an employee (employee A) currently in a position that is to be made redundant and a swap occurring with another employee (employee B), who has lodged an EOI in voluntary retrenchment, to a job that requires similar qualifications or skills. Employee B having swapped into the redundant position originally held by employee A, is then offered the retrenchment package with regards to that position.

Where the conditions set out above from TR 2009/2 are met, a retrenchment package made to the person sitting in a redundant position would be considered to meet the requirements of a genuine redundancy.

Due to meeting the conditions of a genuine redundancy in scenario 1 or scenario 2 there would be no consideration of the 'schemes to reduce income tax provisions' as outlined in Part IVA of the Income Tax Assessment Act 1936.

Scenario 3

Based on the information provided for this scenario, an employee's position has previously been made redundant, whereby at that time they had the option to take a redundancy payment or transfer to the employment transition pool. Employees in the Transition Pool are reskilling, performing intermediary employment duties or waiting for the correct job fit position to become available.

As there is no longer a redundant position available for employee B to swap into, any retrenchment package made to employee B will be an eligible termination payment (ETP) rather than a genuine redundancy.

Conclusion

Subsection 83-170(2) of the ITAA 1997 states that the extent of the genuine redundancy payment that does not exceed the amount worked out in subsection 83-170(3) of the ITAA 1997 is non-assessable and non-exempt income.

Any amount in excess of the tax-free amount is will be classed as an ETP, as defined in section 82-130 of the ITAA 1997. An employer is required to withhold an amount of tax for an ETP in accordance with section 12-85 of the Taxation Administration Act 1953.