By Michal Park
“My definition of a redundancy is an air-bag in a politician's car.”
- Larry Hagman
The collateral damage of the current global economic crisis and, in fact, any downturn in growth is undeniably working individuals. As demand reduces, unemployment subsequently rises. In this crisis, unemployment in Australia currently sits at around 4.5%, with Treasury expecting it to reach levels of 7% or more by 2010. Only time will tell whether these projections will be proven – but as they stand, these figures represent numerous redundancies.
Is it genuine?
Redundancy payments are designed to provide income for a period of time after you leave work. There have been many changes in this space over the last few years, not least of all the actual name of the payment. Once known as a “bona fide redundancy payment” the correct term is now “genuine redundancy payment”. The payment must satisfy specific criteria to be considered a genuine redundancy for tax purposes. These criteria include:
- The recipient must be under 65 years of age (those in excess of 65 are not entitled to have their payment treated as a genuine redundancy and so are not eligible to receive a tax free amount – more on that later),
- The payment must be in excess of what the person would reasonably be expected to receive on voluntary termination (and yet must not exceed an amount that would be reasonably expected to be made if the dismissal was at arm’s length),
- The duties performed by the recipient must no longer be required; and
- There is no arrangement for future employment between the recipient and the employer.
If these criteria are not satisfied, then the payment is not treated as a genuine redundancy and no tax-free amount applies.
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