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02 May 077 Employee/director's ETP a bona fide redundancy payment - Long

The AAT has held that an eligible termination payment (ETP) made to the taxpayer (Mrs Long), who was both an employee and director of the employer company, was a bona fide redundancy payment for the purposes of s 27F of ITAA 1936, by reason of her dismissal from employment.

The taxpayer's employment had been terminated because her employer company, through circumstances beyond its control, no longer had any work to do and no jobs for any employee. In submissions, the Commissioner argued that the taxpayer, as a director and part of the governing mind of the employer company, could not dismiss herself and must have voluntary consented to the termination. This submission was rejected by the AAT which said "it is difficult to say that the employee was not dismissed if there is no work available for that employee". Thus the terms of s 27F were satisfied.

The AAT noted, at this point:

"It was noted that the [taxpayer] in this case received test case funding from the respondent. It is assumed that this was done in order to test the question of whether s 27F(1)(a) of the Act can ever be satisfied where the employee concerned is both employee and director. In my view, it is not possible to answer this question in absolute terms. In common with many areas of revenue law, an answer will depend on the particular facts of each case. Here, I am satisfied that where all work of the employer ceased as a result of external circumstances beyond the control of the employer and all employees, including the directors in their capacity as employees, are made redundant, such termination meets the requirements of that paragraph of s 27. The termination was forced on Mrs Long as both a director and employee."

Further, the AAT held that the amount of the payment paid to the taxpayer was reasonable and that, had she retired voluntarily, she could not reasonably have expected any payment. Thus, the full amount paid to her was a bona fide redundancy payment, as it did not exceed the tax free amount as defined in s 27A(19) ITAA 1936: Long and FCT [2007] AATA 1269 (AAT, Pascoe SM, 30 April 2007).  

For a copy of the decision, go here

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