Income tax: is a payment received under a voluntary redundancy package a bona fide redundancy payment for the purposes of section 27F of the Income Tax Assessment Act 1936 ?

No. For a payment to be a bona fide redundancy payment under section 27F there must be a dismissal by reason of bona fide redundancy. Paragraph 19 of Taxation Ruling No. IT 2286 states that the term "dismissal" carries with it the concept of the involuntary (on the employee's part) termination of employment . (Refer also to Stroud's Judicial Dictionary.)

Payments which fall within the terms of section 27F are treated concessionally. That is, only 5% of the bona fide redundancy payment is included in the taxpayer's assessable income and taxed at the taxpayer's marginal rate of tax.

In the case of a voluntary redundancy package, the employee takes advantage of the invitation made by the employer to receive the voluntary redundancy package and has his or her employment terminated. This does not constitute a "dismissal" even though the ultimate decision of whether or not the contract of employment should be terminated, remains with the employer (Birch and Another v. University of Liverpool [1985] IRLR 165). The termination is made by "mutual agreement" and is considered to be voluntary.

Payments made under a voluntary redundancy package may fall within the terms of section 27E which deals with early retirement scheme payments. If the requirements of this section are met, the payments are treated concessionally. These early retirement schemes require our approval before payments are made under the scheme. If approval is not granted, then the payments are not treated concessionally.