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I require assistance please. Can an ATO expert please clarify that 'pay in lieu of notice' amountswhen paid out for a redundancy should be included for tax free consideration, along with the severance payment, up to the ATO’s prescribed tax free limit, based on years of service.
I am specifically asking for clarification on 'pay in lieu of notice' amounts paid in connection to an involuntary redundancy. The ATO says this "may" be included, depending on your employment conditions.
My situation is: I am age 49 and I was made redundant this month. I was paid out my notice and terminated on the spot. I did not resign. I did not work during the notice period. I was paid 5 weeks in lieu of notice and 4 weeks redundancy (total 9 weeks). I worked for a large national company.
My employer has taxed the entire 5 week notice payment at 32%, rather than include 'pay in lieu of notice' amount as an eligible redundancy payment. It is my understanding that, specifically in relation to the 'pay in lieu of notice' amount, I should have only been taxed on the amount over and above my prescribed tax free limit, because the 'pay in lieu of notice' was part of a redundancy and in consequence of my termination of employment.
I provided my employer with the following ATO website link, and information to explain that the pay in lieu of notice is part of the redundancy payment:
Depending on your employment conditions, a genuine redundancy payment may include:
payment in lieu of notice
severance payment of a number of weeks' pay for each year of service
a gratuity or 'golden handshake'.
I also provided my employmer with reference to Clause 64 of Taxation Ruling TR 2009/2 where it states “A payment in lieu of notice can be a genuine redundancy payment provided that such a payment would not be expected on voluntary termination.”
However, my employer does not accept that 'pay in lieu of notice' paid in connection to a redundancy should be part of the redundancy amount, eligible for tax free consideration up to the prescribed limit. Rather they have taxed the full amount at 32% and insist they are right. Their reasoning is that my contract says I have to give 4 weeks notice - however I did not resign and my redundancy was involuntary.
When I asked my employer to correct this, I received this reply from them (in italics):
"According to tax law, and specifically the provisions of TR2009, where a payment in lieu of notice would have been whatever the reason for termination of employment, i.e. the payment is provided for in the contract, then the payment in lieu of notice does not form part of the Genuine Redundancy payment."
And also I received this reply from my employer in italics (after their payroll manager reviewed this matter also):
"When referring to the ATO website, it is stated that Payment in Lieu of Notice may be included in a genuine redundancy payment depending on your employment conditions and also refers us to TR2009/2 for guidance.
When calculating your redundancy payment, we have not included your Payment in Lieu of Notice payment for tax free consideration as, per your contract, you are required to give a minimum of 4 weeks’ notice on voluntary termination. If you had of resigned voluntarily you would have either worked your 4 weeks’ notice and been taxed or been paid for this by payment in lieu of notice which would have been taxed accordingly as an ETP."
Can you please assist? I need to provide my employer with a response to verify that 'pay in lieu of notice' is part of the eligible redundancy payment. I have sent multple emails with the above noted ATO links etc. to no avail.
If I cannot resolve this with my employer, how else do I lodge a dispute and obtain assistance with this matter from ATO?