Genuine redundancy payments can be made to company directors or related party employees.  If these dismissals are not arms-length the genuine redundancy payments must not be greater than the amount expected to be made if the dismissal was arms-length.

The tax-free limit for genuine redundancy payments for the 2018/19 financial year is $10,399 plus $5,200 for each completed year of service (part years are disregarded).

The tax free amount of a genuine redundancy payment is recorded at Label D on the employee’s payment summary and is not required to be included in the tax return as income.

An employer has four valid reasons for terminating an employee’s employment:

1.    Capacity – This relates to the employee's ability to perform the job.
2.    Conduct – This relates to contraventions of company policies, safety obligations, inappropriate conduct, etc.
3.    Performance – Poor performance of duties.
4.    Genuine redundancy – Occurs where a position is no longer required to be performed by anyone due to changes in the employer’s operational requirements.


Implementation Process required:

1.    Determine whether a genuine redundancy of the directors and related parties has occurred and document the supporting evidence.
2.    Provide evidence that genuine redundancy payment amounts are arms-length.
3.    Report the genuine redundancy payments to the ATO and include on applicable payment summaries.

Please refer to section 25-50 Income Tax Assessment Act 1997

For further information please see Taxation Ruling 2009/2

If you would like to discuss further please contact us:
McNamara & Company - Chartered Accountants, located minutes from the Melbourne CBD
www.mcnamaraandcompany.com.au/contact-us
Phone +61 3 9428 1062
Email admin@mcnamaraandco.com
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