Genuine redundancy payments

The Australian Taxation Office has ruled that even those who operate their own business can be paid out "genuine redundancy payments" which are concessionally taxed.

Example

Edsel Design Pty Ltd provides car design services to Aussie Autos. Bill and Mary Edsel are directors of the company, which employs 20 people. Bill is the Administration and Marketing Manager and Mary is the Design Manager.

After several years of losses, Aussie Autos decides to cease operations.

As Aussie Autos is Edsel Design's sole client and other opportunities are not realistically available, Bill and Mary also decide to cease the operations of Edsel Design.

Redundancy payments are made to all employees, including Bill and Mary, equal to eight weeks pay over and above unused leave entitlements. None of the employees is entitled to redundancy payments under their employment arrangements.

These payments are treated as genuine redundancy payments as it is clear that Bill and Mary's employment terminated because of redundancy. In their capacity as directors, they had no choice but to terminate their own employment along with the other employees.

Talk to Saward Dawson

This is a very complex area. If you own your own business and considering this issue, please give Saward Dawson a call.

Published : 07 October 2008