Edited version of private advice

Authorisation Number: 1051886990851

Date of advice: 20 August 2021

Ruling

Subject: Employment termination and genuine redundancy payment

This ruling applies for the following period:

Financial year ended 30 June 2021

The scheme commences on:

1 July 2020

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.

You were employed as a receptionist until your employment was terminated, when you were made redundant.

Your employer issued you a letter advising you will be paid as a result of your employment redundancy which included:

•                 Payment in lieu of five weeks' notice.

•                 Six weeks' severance pay.

Your Employer issued you with an employment separation certificate. The certificate indicated that how your payments will be taxed:

•                 Payment in lieu of five weeks' notice will be taxed as an ETP.

•                 Six weeks' severance pay of will be a tax-free redundancy payment.

You applied for a private ruling requesting for your payment in lieu of five weeks' notice to be treated as a tax-free redundancy payment instead of an ETP.

Detailed reasoning

1.     An ETP under section 82-130 of the ITAA 1997 is a payment received by you:

•                 in consequence of termination of your employment;

•                 it is received no later than 12 months after that termination; and

•                 it is not a payment mentioned in section 82-135 of the ITAA 1997

2.     In your case, your payment in lieu of five weeks' notice was made in connection with the termination of your employment. The payment was made within 12 months of termination of your employment. The payment was not any of those mentioned under section 82-135 of the ITAA 1997. Therefore, the payment made to you is an ETP.

3.     You contend that your ETP should be treated as a tax-free redundancy payment under paragraph 64 of Taxation Ruling (TR) 2009/2: Income tax: genuine redundancy payments which states (emphasis added):

'64. A payment in lieu of notice can be a genuine redundancy payment provided that such a payment would not be expected on voluntary termination.'

4.     However, your employment contract states, on termination of your employment that:

Your employment may be terminated by yourself or the Company by the giving of notice as prescribed under the Act or by one month notice in writing, or by the Company without notice on the payment of one month's wage in lieu of notice.

5.     As your employment contract specifies that you would be paid one month's wage in lieu of notice where your employment is terminated by your Employer without notice, it cannot be said that your payment in lieu of notice was not expected on your voluntary termination either by you or your Employer.

Conclusion

6.     Therefore, paragraph 64 of TR 2009/2 does not apply in your case and your employer correctly treated your payment in lieu of notice as an ETP as the payment was to be expected on voluntary termination of your employment.