IEU takes on the taxman and wins!
The IEU has won a significant victory for a member over the Deputy Commissioner of Taxation in the Federal Court of Australia in a case which proved that a reduction in hours and pay can constitute a genuine redundancy, even if some of the work duties remain the same.
The court determined that the member’s job had been “reorganised out of existence” and that employers cannot reclassify a redundancy as redeployment simply because some of the duties still need to be performed.
At issue was whether the member’s termination payment should be classified as a genuine redundancy payment or as an employment termination payment (ETP), which has less favourable tax treatment. The Court had to determine whether a reduction in hours and changes in working conditions meant that her previous position was genuinely redundant.
The case: restructure
and redundancy
An Early Learning Centre (ELC) assistant, employed part-time since 2014, experienced a restructure that reduced hours and working days. The employee was given a choice between redeployment with a 20-40% pay cut or redundancy. Choosing redundancy, they received a payment of $15,326.96.
The school classified this as an employment termination payment (ETP), leading to higher taxation. Seeking to have it recognised as a genuine redundancy payment, which is tax-free, the employee requested an ATO ruling. The ATO rejected the claim, arguing that the role wasn’t redundant since some duties still existed.
Federal Court Ruling
With IEU support, an appeal was launched on the grounds that:
A significant reduction in hours and pay meant the previous role no longer existed.
The dismissal qualified for redundancy tax benefits.
The Court determined that a position is redundant when "through no fault of the employee, their role no longer exists, or the duties have changed so significantly that the original role no longer exists in practical terms."
It concluded that a new role with fewer hours and lower pay was not the same position. The employee’s remuneration would have dropped from $50,698.88 to either $40,636 or $30,644 — a 20-40% reduction.
The ATO’s argument that redundancy only applies if all duties disappear was ruled incorrect.
Why this outcome is important
This ruling has significant financial benefits for the employee as it ensures the redundancy payment remains tax-free. Additionally, the ATO was ordered to cover legal costs.
More broadly, the case underscores the vital role of unions in protecting workers’ rights. With expert advocacy, the IEU secured justice for the worker—providing greater financial security as well as setting an important precedent for others in similar situations.
Industrial Officers are already identifying members who will benefit directly from this decision, including some in Catholic schools who may have had redundancies taxed incorrectly.
Please contact the union if you think this decision may apply to you.
