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ATO Interpretative Decision

ATO ID 2001/16 (Withdrawn)

Superannuation: Bona Fide Redundancy (Lump Sum on Completion of Fixed Term Contract)

Attention This ATO ID is withdrawn as it is a simple restatement of the law and does not contain an interpretative decision.
Attention This document has changed over time. View its history.
FOI status: may be released
Status of this decision: Decision Withdrawn 9 May 2008

CautionCAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.


Whether the lump sum payment on completion of a fixed term contract is a bona fide redundancy amount under section 159S of the Income Tax Assessment Act 1936.


The lump sum payment on completion of a fixed term contract is not a bona fide redundancy amount under the Income Tax Assessment Act 1936 section 159S.


The employee held office as a full-time executive director of a company. That office was held under the terms of an employment contract which expired on its due date. At the time of entering into the contract both parties expected the contract would be renewed. However, on the expiry of the contract the employer (taxpayer) decided to abolish the position as part of a group restructure. Upon expiry the employer is liable to pay a termination payment, as well as lump sums in lieu of accrued annual leave and long service leave. Following discussions between the employer and the executive, the executive entered into a consultative arrangement with the employer which is said to be completely different from the executive's former duties.

Reasons For Decision

Under the Income Tax Assessment Act 1936 subsection 27A(1), a payment made in respect of a taxpayer in consequence of the termination of any employment of the taxpayer is an eligible termination payment (ETP). It is considered that, in view of the completion of the contract and the abolition of the position formerly held by the executive, the completion of the contract constitutes a termination of the employment as a director. This view is supported by Taxation Ruling TR 96/13 and by the decision in Reseck v FCT (1975) 75 ATC 4213; (1975) 5 ATR 538.

An employee with a fixed termination date is treated differently from an employee with an open contract of employment. By virtue of the Income Tax Assessment Act 1936 subparagraph 27F(1)(b)(i) an ETP paid on completion of a particular period of service will not qualify as a bona fide redundancy payment.

In the case where there is an agreement for employment with limited tenure, the date upon which that employment terminates under the agreement will be the last retirement date for the purposes of the Income Tax Assessment Act 1936 section 159S. The payment therefore does not satisfy the definition of bona fide redundancy amount under the Income Tax Assessment Act 1936 section 159S.

Date of decision: 12 December 1997

Legislative references:
Income Tax Assessment Act 1936
   section 27A
   section 27F
   section 159S
   section 159SA

Case references:
Jarra Hills Pty Ltd v. FC of T
   97 ATC 2132
   (1997) 37 ATR 1022

Related Public Rulings (including Determinations)
TR 96/13

Other references
Canberra Income Tax Circular Memorandum (CITCM) 849

Bona fide redundancy payments
Eligible termination payments

Business line: Superannuation

Date of publication: 4 June 2001

ISSN: 1445-2782

ATO ID 2001/16 (Withdrawn) history   Top  
   Date   Version 
   12 December 1997   Original statement   
 You are here ®   9 May 2008   Withdrawn   


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