Hi,
I am seeking guidance on the correct tax treatment of an additional ex-gratia payment made in connection with a genuine redundancy.
My employment is ending by reason of redundancy. I have been employed since March 2020 and my cessation date is 30 June 2026, so I understand I have 6 completed years of service.
Under the Deed of Release, the settlement amount includes:
- outstanding wages;
- accrued but untaken annual leave;
- accrued pro-rata long service leave;
- $ Amount, being an amount equivalent to 11 weeks’ redundancy pay; and
- $ Amount, being an additional ex-gratia amount equivalent to 12 weeks’ pay.
The deed states that the redundancy pay and the additional ex-gratia amount are subject to:
“tax as a genuine redundancy payment up to the statutory maximum and thereafter as an employment termination payment.”
The draft payslip currently treats:
- the 11 weeks’ redundancy pay as Lump Sum D; and
- the whole 12 weeks’ ex-gratia amount as a non-excluded ETP Type O, with the full amount taxable and withholding applied at 47%.
My question is whether that treatment is correct.
My understanding is that under section 83-175 of the Income Tax Assessment Act 1997, a genuine redundancy payment is so much of a payment received by an employee dismissed because their position is genuinely redundant as exceeds the amount that could reasonably be expected to be received on voluntary termination.
On that basis, if the additional 12-week ex-gratia amount would not have been payable on voluntary resignation or any other non-redundancy termination, and is only payable because my employment is ending by reason of redundancy, should it be included in the genuine redundancy payment calculation?
In other words, should the remaining genuine redundancy tax-free cap first be applied to the ex-gratia payment, with only the excess above the cap treated as an ETP?
If so, should that excess generally be reported as an excluded ETP, Type R, rather than the entire ex-gratia amount being reported as a non-excluded Type O ETP?
The practical issue is that Type O treatment applies the whole-of-income cap, which in my case results in 47% withholding on the full ex-gratia amount. However, the deed wording appears to contemplate genuine redundancy treatment up to the statutory maximum, and then ETP treatment only for the excess.
I understand that the payment is being made under a Deed of Release and is only payable once the deed is executed. Does the fact that the payment is documented in a deed and accompanied by a release of claims automatically prevent it from forming part of a genuine redundancy payment, or does the relevant question remain whether the amount exceeds what would have been payable on voluntary termination and is attributable to the redundancy?
Any guidance on whether this should be treated as Type O or as genuine redundancy / Type R would be appreciated.
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