ATO loses fight on redundancy

Substantial changes in hours, remuneration and working days may be sufficient for a position to be regarded as genuinely redundant.

The Commissioner of Taxation has lost an appeal to the Full Federal Court, seeking to overturn the decision of the primary judge that a payment classified by an employer as an employment termination payment met the definition of a genuine redundancy payment and therefore was eligible for more favourable tax treatment. The taxpayer’s role as an early learning centre assistant working part-time was being remodelled, with no change in skills and duties. However her hours were proposed to be reduced and working days were to change.

In Commissioner of Taxation v Baya Casal [2026] FCAFC 11, the Court found in the taxpayer’s favour and held the payment she received when she chose not to continue in the restructured role was a genuine redundancy payment.

The key points to note are:

• A restructure involving the redistribution of duties among existing employees can lead to redundancies;

• It is not necessary that employment in a specific role be terminated for redundancy to arise. However there must be a material change in an individual’s role for it to give rise to redundancy.

• In this case, there was a 40% reduction in hours and remuneration and changes to the days worked. This was held to be a material change to the collection of functions, duties and responsibilities that comprised the role.

Employers should consider:

• The impact of this decision when classifying payments as either employment termination payments or redundancy payments.

• While in this case the taxpayer took the initiative to contest the treatment adopted by their employer, this is a timely and potentially expensive approach that is not ideal in the circumstances where an individual has ceased employment.

For assistance in classifying payments to employees in connection with reorganisations and restructures, please contact us.