Issue
Is the payment a bona fide redundancy payment where there was an agreement between the taxpayer and the employer to re-employ the taxpayer after the termination of their employment?
Decision
No. Where there was an agreement between the taxpayer and the employer to re-employ the taxpayer after the termination of their employment, the payment received on termination of the employment is not a bona fide redundancy payment (subsection 27F(1) of the Income Tax Assessment Act 1936 (ITAA 1936).
Facts
The taxpayer's permanent full-time employment was terminated. At the time of termination there existed an agreement between the taxpayer and the employer which provided for the taxpayer to be re-employed on a casual basis.
Reasons for Decision
Under subsection 27F(1) of the ITAA 1936 there are 5 conditions which must be satisfied before a payment can be regarded as a bona fide redundancy payment. The conditions require an eligible termination payment (ETP) to be made on termination of employment by reason of bona fide redundancy. The payment must not be from an eligible superannuation fund and the termination must occur before the taxpayer's 65th birthday or before the taxpayer's employment would necessarily have had to terminate. In addition, if the taxpayer and employer were not dealing at arm's length, the ETP must not be greater than the amount that could reasonably be expected to have been paid had the parties been dealing at arms length.
The final condition in paragraph 27F(1)(d) of the ITAA 1936 states that there must not be, at the termination time, any agreement between the taxpayer and the employer, or between the employer and another, to employ the taxpayer after the termination time.
Because of the existence of the agreement to re-employ the taxpayer on a casual basis being in place, the payment could not be regarded as a bona fide redundancy payment.