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10 Apr 1212 No “genuine redundancy” where position remains – Weeks

On 4 April 2012 the Federal Court held that a payment received by a former Australian Taxation Office employee when she accepted a voluntary redundancy was not tax-free as a “genuine redundancy payment” within s 83-175(1) ITAA 1997, because the employee’s position was not genuinely redundant. The court dismissed the taxpayer’s appeal from a decision of the Administrative Appeals Tribunal, reported at Re a Taxpayer and FCT [2011] AATA 499.

At the time she left the ATO, the taxpayer was an EL2 executive officer. Following negotiations between the taxpayer and a senior officer of the ATO, she was offered a redundancy. That offer was made under cl 97 of the ATO (Executive Level 2) Agency Agreement 2009 on the ground that she could no longer be effectively utilised in the ATO. The taxpayer accepted that offer and her employment was terminated on the grounds that she was “excess to the requirements of” the ATO under s 29(3)(a) of the Public Service Act 1999 (Cth).

Following the termination of her employment, the taxpayer received a termination payment, which had been taxed as an Employment Termination Payment. The taxpayer took the view that the payment was a “genuine redundancy payment” under s 83-175 ITAA 1997 and was therefore tax-free. She sought a private ruling, When that ruling was not to her satisfaction, she lodged an objection to it. Since that objection had not been determined by the time her assessment was issued for the 2009-2010 income year, it was agreed that her objection would stand as an objection against both the private ruling and the 2009-2010 assessment. The taxpayer’s objection was subsequently unsuccessful. She then sought a review of that decision in the AAT. That was also unsuccessful. The taxpayer appealed to the Federal Court.

The AAT had held that the payment to the taxpayer was not a “genuine redundancy payment” within s 83-175 ITAA 1997, because the taxpayer’s position within the ATO had not disappeared.

On appeal, the court agreed with the AAT’s decision. The evidence was clear that the taxpayer had accepted voluntary redundancy on the basis that her services could not effectively be utilised by the ATO in her then current position and that alternative employment for her within the ATO was not available. The court held that, for a payment to be a “genuine redundancy payment” under s 83-175(1), the employee’s position has to be made redundant. So much is clear from the language of s 83-175: “because the employee’s position is genuinely redundant”. The court considered that the AAT correctly identified this distinction where it highlighted the difference between a situation where an employer no longer requires a job to be done by any employee, and a situation where an employer no longer wants a job to be done by a particular (former) employee. Having made this valid distinction, the AAT then found, as a matter of fact, that the taxpayer’s redundancy fell into the latter category. Thus, the AAT had made no error of law in its construction of s 83-175(1) and the AAT’s finding of fact was not open to be reviewed in this appeal.

Weeks v FCT [2012] FCA 342 (Federal Court, Reeves J, 4 April 2012).

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