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Employment and Migration Blog

Q: When is a redundancy not a redundancy?

Posted by Stephen Booth on 8 Aug 2011

Continuing on last week’s theme that “Redundancy is not a panacea”, I saw a decision last week, made particularly interested by the ATO’s involvement both as employer and taxman, so that the A to the Q above could be “When the ATO says so”.

An ATO employee negotiated a voluntary redundancy then asked the ATO to treat it as a “genuine redundancy” to get the tax breaks involved. The ATO refused. She went to the AAT to argue the issue, the ATO opposed it, and she lost.

So, on the face of it, the ATO agreed with her it was a redundancy, but then decided it was not so for tax purposes.

The AAT’s reasoning was essentially that the ATO still needed someone to do her job. Her duties were parcelled out to others temporarily, but the ATO had consistently said that if she was not returning from long service leave, they needed to replace her. Therefore, in reality, despite what the ATO’s own documents said, there was no “genuine redundancy” – it was not a situation of an employer not wanting the job done by anybody.

The risk where tax on a termination payment is reduced, on a redundancy which is not a real redundancy, is that the taxman later realises that it was not genuine, and comes looking for the additional tax. So using redundancy as a cover-all to short-circuit the proper processes carries risk.

This means employers have to focus on how the redundancy will appear to an outsider and how good a case there is for the role having disappeared, not just the person who was doing it. Talking to us helps achieve that focus, and therefore decide whether redundancy is a viable option or not. Or, alternatively, you need to go through the proper processes for whatever the underlying issue may be.

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