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27 Apr 11 Commissioner's case on transitional termination payment "incongruous" - Perfrement

The AAT has upheld the taxpayer's challenge to an assessment that denied a redundancy payment received by him the character of a "transitional termination payment" for the purposes of s 82-10 of ITAA 1997.

Section 82-10 requires that a payment, if it is to qualify as a transitional termination payment, must (amongst other things) be made pursuant to an entitlement provided for under a contract in force before 10 May 2006. The taxpayer had such a contract. His employment was terminated by redundancy on 30 September 2008. His  employer amended its redundancy policy in May 1995, July 2005 and July 2008, during the term of the taxpayer's employment. The amendment in July 2008 followed changes to the taxation law.

The Commissioner argued that because of the amendments in july 2008, the taxpayer's redundancy was not provided for under a contract in force before 10 May 2006. In response, the taxpayer submitted that it was incongruous for the Commissioner to assert that the employer's redundancy policy must be taken to have changed because the tax laws changed and the employer purported to publish, in effect, a memorandum of advice to its employees identifying the changes in the tax laws.

The AAT agreed. It said, at para 34:

"The Tribunal is of the opinion that the policy published by the employer in July 2008 was neither a new contract nor a variation of the existing contract. The redundancy policy published in July 2008 was essentially a memorandum of advice to employees as to the effect of newly introduced tax laws. It was, in essence, self-evident advice contained within a company policy document. There was, as submitted by the [Commissioner], no change to the method of compensation in the event of redundancy, but rather a change in the application of tax laws to those benefits."

The AAT set aside the decision under review and in substitution decided the taxpaeyr received a transitional termination payment as defined in  82-10 of ITAA 1997.

Perfrement and FCT [2011] AATA 264 (AAT, Hughes M, 20 April 2011).


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