The AAT has concluded that a lump sum payment received by an individual taxpayer was an employment termination payment (ETP) under s 82-130(1) of the ITAA 1997 and was not a genuine redundancy payment under s 83-175 of the ITAA 1997. As a result, the AAT affirmed the taxpayer was liable to income tax on the full amount received.
- The taxpayer commenced work with her then employer in August 2010.
- However, after 2 years, the Tribunal heard that new working arrangements presented problems for the taxpayer leading her to seek advice from an employment lawyer who eventually advised her to negotiate [a] settlement and resign.
- The taxpayer resigned on 10 April 2013 and the parties entered into a Deed of Separation and Release.
- On 15 April 2013, the employer paid the taxpayer $25,000 for which $7,875 tax was withheld. The employer also issued the taxpayer with a report, which described the payment as a “golden handshake”.
The AAT held the amount received by the taxpayer on the termination of her employment was not a genuine redundancy payment and therefore constituted assessable income. In order for the termination to constitute a “dismissal from employment”, the AAT said there must be a decision to terminate employment at the employer’s initiative, without the consent of the employee. It added that this is to be contrasted with employment that is terminated at the initiative of the employee, for example, in the case of resignation. It also affirmed the lump sum payment received by the taxpayer was an ETP and that no part of the lump sum payment was excluded from being an ETP under s 82-135 of the ITAA 1997.
(Re CZRS and FCT  AATA 40, AAT, File No: 2014/1611, Dunne SM, 29 January 2015.)
[LTN 20, 2/2/15]
Extracts from the Income Tax Assessment Act 1997
82-130 What is an employment termination payment?
(1) A payment is an employment termination payment if:
(a) it is received by you:
(i) in consequence of the termination of your employment; or
(ii) after another person’s death, in consequence of the termination of the other person’s employment; and
(b) it is received no later than 12 months after that termination (but see subsection (4)); and
(c) it is not a payment mentioned in section 82-135.
83-175 What is a genuine redundancy payment?
(1) 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.
(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 the dismissal.
ETP’s are broadly assessable in full (to the extent that the numerous components are not fully assessable).
One of those components is “bona fide redundancy payments” which have a component that is ‘non-assessable non-exempt’ to the following extent (see s83-170(2)&(3) ITAA 1997):
= Base Amount [$9,514] + (service amount [$4,758] x years of service).