Employment termination payment

1 Is your Government top-up payment a genuine redundancy payment under section 83-175 of the Income Tax Assessment Act 1997 (ITAA 1997)?

1 No Question 2 Is any part of the payment an employment termination payment (ETP) as defined in section 82-130 of the ITAA 1997? Answer 2 Yes This private ruling applies for the following period Years ending 30 June 20XX and 20XX

The Department of Energy, Environment and Climate Action (DEECA) introduced the Worker Support Program (Program), to assist eligible workers impacted by the transition away from native timber harvesting. The Government top-up payment (GTU) is a safety net payment for workers who have been made genuinely redundant or had their casual employment contract terminated due to the cessation of native timber harvesting in state forests. You have stated that you voluntarily ceased employment with the employer during the 20XX income year. You later lodged an application with DEECA seeking approval for a GTU payment. DEECA determined that you were eligible to receive a GTU payment, consistent with the scheme's policy intent to provide financial support to workers who have been terminated or made redundant by their employer. However, it was stated that the payment did not qualify as a genuine redundancy payment. The payment was calculated based on your years of service in the timber industry. Contentions You believe your GTU payment is a redundancy payment as per class ruling CR 2024/71 - Department of Energy, Environment and Climate Action - Victorian Forestry Transition Program .

Income Tax Assessment Act 1997 section 82-130 Income Tax Assessment Act 1997 section 82-135 Income Tax Assessment Act 1997 section 83-175 We followed these ATO view documents Taxation Ruling 2003/13 Income tax: eligible termination payments (ETP): payments made in consequence of the termination of any employment: meaning of the phrase 'in consequence of' (TR 2003/13) Taxation Ruling TR 2009/2 Income tax: genuine redundancy payments

Genuine redundancy payment A payment made to an employee is a genuine redundancy payment if it satisfies all the conditions set out in section 83-175 of the ITAA 1997. This section states: (1) A genuine redundancy payment is so much of a payment received by an employee who is dismissed from employment because the employees position is genuinely redundant and 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 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 the employee reached pension age; (ii) if the employees 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 ay arms length the payment does not exceed the amount that could reasonably be expected to be made if the dismissal were at arms 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 dismissal. (3) However, a genuine redundancy payment does not include any part of a payment that was received by the employee in lieu of superannuation benefits to which the employee may have become entitled at the time the payment was received or at a later time. Payments not covered (4) A payment is not a genuine redundancy payment if it is a payment mentioned in section 82-135 (apart from paragraph 82-135(e)). Paragraph 11 of Taxation Ruling TR 2009/2: Income tax: genuine redundancy payments (TR 2009/2), 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. You contend your GTU payment meets the definition of a redundancy payment as per class ruling CR 2024/71. Paragraph 7 of CR 2024/71 states the following: 7. If an employee receives a GTU payment under the Program, to the extent that payment either does not satisfy the criteria of section 83-175, or exceeds the limit worked out under section 83-170, that payment will be an employment termination payment (ETP), where the criteria of section 82-130 is satisfied with reference to an objective assessment of their circumstances. The tax treatment of that ETP will also depend on their circumstances. Therefore, your GTU payment must satisfy the requirements of section 83-175 of the ITAA 1997 to qualify as a genuine redundancy payment. The Commissioner's view is that a genuine redundancy payment arises only when there is no suitable job available for the employee with the employer, making dismissal necessary. TR 2009/2 states:

25. An employee's position is redundant when an employer determines that it is superfluous to the employer's needs and the employer does not want the position to be occupied by anyone. Accordingly, it is fundamentally the employer's decision that a position is redundant. On occasion the decision may be unavoidable due to the circumstances surrounding the employer's operations. You have stated that you voluntarily resigned due to a dispute, and no evidence has been provided to show that your employer made your position redundant. As the employer did not make the position redundant, a key requirement of subsection 83-175(1) of the ITAA 1997 has not been met. Consequently, no part of the payment qualifies as a genuine redundancy. Employment termination payment The term 'employment termination payment' as defined in section 82-130 of the ITAA 1997, includes any payment made in respect of a taxpayer 'in consequence of the termination of their employment', other than certain specified payments.

A payment is an ETP if it satisfies all the requirements in section 82-130 of the ITAA 1997 and is not specifically excluded under section 82-135 of the ITAA 1997. Subsection 82-130(1) of the ITAA 1997 states: 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 the termination (but see subsection (4)); and (c) it is not a payment mentioned in section 82-135. An ETP does not have to be paid by an employer or former employer. It can be paid by another entity, such as a government agency or industry body, as long as the payment is in consequence of the termination of employment. Paid 'in consequence' of the termination of employment

The phrase 'in consequence of' is not defined in the ITAA 1997. However, the courts have interpreted the phrase in a number of cases. Taking into account the courts' decisions on the meaning of the phrase, the Commissioner's view on the meaning and application of the 'in consequence of' test are set out in Taxation Ruling TR 2003/13 Income tax: eligible termination payments (ETP): payments made in consequence of the termination of any employment: meaning of the phrase 'in consequence of' (TR 2003/13). Paragraphs 5 to 7 of TR 2003/13 state: 5 ...the Commissioner considers that a payment is received by a taxpayer in consequence of the termination of the taxpayer's employment if the payment 'follows as an effect or result of' the termination. In other words, but for the termination of employment, the payment would not have been received by the taxpayer. 6. The phrase requires a causal connection between the termination and the payment, although the termination need not be the dominant cause of the payment....

7. The greater the length of time between the termination of employment and the payment, the more likely that the causal connection between the termination and the payment will be too remote for a conclusion that a payment was received in consequence of the termination of employment. However, length of time will not be determinative when there is a presently existing right to payment of the amount at the time of termination. DEECA determined that you were eligible to receive a GTU payment, consistent with the scheme's policy intent to provide financial support to workers who have been terminated or made redundant by their employer. The payment was calculated based on your years of service in the timber industry. Although you initiated the application for the payment, it was a direct consequence of your employment termination. A sequence of events following the termination ultimately resulted in the payment being made to you, with the termination, DEECA application, and payment all intertwined.

The payment would not have been made but for the termination of your employment. Therefore, the GTU payment is considered to have been received by you in consequence of the termination of your employment. As such, the requirement of subparagraph 82-130(1)(a)(i) of ITAA 1997 has been satisfied. Payment received no later than 12 months after termination Paragraph 82-130(1)(b) of the ITAA 1997 requires that the payment must be received no later than 12 months after the termination of employment. However, subsection 82-130(4) of the ITAA 1997 says that paragraph 1(b) does not apply to you if: (a)         you are covered by a determination under subsection (5) or (7); or (b)         the payment is a *genuine redundancy payment or an *early termination payment Under subsection 82-130(5) of the ITAA 1997, the Commissioner may determine in writing, that paragraph 82-130(1)(b) does not apply to you if the Commissioner considers that the time between the employment termination and the payment is reasonable, having regard to the following: (a) the circumstances of the employment termination, including any dispute in relation to the termination; (b) the circumstances of the payment;

(c) the circumstances of the person making the payment; (d) any other relevant circumstances. Your employment was terminated during the 20XX income year. The payment was made during the 20XX income year, which was more than 12 months after the termination. You lodged a formal claim for redundancy pay within 12 months of the termination of your employment. The delay in payment related to the time taken in processing your claim by DEECA. After considering the circumstances of the termination, the payment, and the paying entity, the payment is exempt from the 12-month rule under paragraph 82-130(1)(b) of the ITAA 1997. Therefore, the condition in paragraph 82-130(1)(b) of the ITAA 1997 has been met. Payment is not a payment mentioned under section 82-135 of the ITAA 1997 Paragraph 82-130(1)(c) of the ITAA 1997 specifies that an ETP does not include a payment mentioned in section 82-135. Your payment is not one of the payments mentioned in subsection 82-135 of the ITAA 1997. Conclusion As all conditions in subsection 82-130(1) of the ITAA 1997 have been satisfied, the payment is an ETP.