In Deputy Commissioner of Taxation v Baya Casal 2026) FCAFC 11, the Full Federal Court of Australia found in favour of a terminated employee that their role was genuinely redundant and as such eligible to receive the favourable taxation treatment available for genuine redundancy payments (GRP’s).
The employer had taxed the ‘termination’ payment under less favourable employment termination payment (ETP) rules which provided the setting to the case. The most recent decision resulted from an appeal by the ATO against an earlier decision of the Federal Court which also determined the matter in favour of the terminated employee.
Section 83-175 of the Income Tax Assessment Act 1997 (ITAA 1997) provides:
“What is a genuine redundancy payment?
(1) A genuine redundancy payment is so much of a payment received by an employee who is dismissed from employment because the employee’s position is genuinely redundant as exceeds the amount that could reasonably be expected to be received by the employee in consequence of the voluntary termination of his or her employment at the time of the dismissal”.
Whilst there are numerous other conditions before an amount can be treated as a GRP all were satisfied and as such are not discussed in this article
A payment is classified as an ETP if it is received in consequence of termination of employment, not later than 12 months after termination, and it is not a payment mentioned in s82-135 of the ITAA97 (one such payment being a genuine redundancy payment).
ETPs are taxed under Division 82 of the ITAA97 differently from genuine redundancy payments.
ETPs do not receive the benefit of the same tax free concession as genuine redundancy payments (although there can potentially be some concessionary tax treatment).
The Tax Free Amount of a genuine redundancy payment is a type of payment mentioned in s82-135 of the ITAA97, so that amount is not treated as an ETP. The remainder of a genuine redundancy payment is treated as an employment termination payment.
The Tax Free Amount of a genuine redundancy payment is calculated using the following formula (the Tax Free Amount) in s83-170(3) of the ITAA97:
Base amount + (Service Amount x Years of service)
The Base Amount and service amount in recent years are shown below:
| Income year | Base limit | For each complete year of service |
|---|---|---|
| 2025–26 | $13,100 | $6,552 |
| 2024–25 | $12,524 | $6,264 |
| 2023–24 | $11,985 | $5,994 |
| 2022–23 | $11,591 | $5,797 |
| 2021–22 | $11,341 | $5,672 |
The employee was employed by the employer as an early learning centre (ELC) assistant on a part-time basis of 34.56 hours per week.
The employer notified the employee that the ELC structure was to be remodelled with the part time hours to decrease and working days changed. The skills and duties for the role would be similar.
The employer was proposing three new ELC roles. As an example, Role 1 consisted of 28.5 hours to be worked over four days a week.
The employee was advised that she were eligible to be redeployed to the remodelled ELC role or could take a redundancy.
The days and number of hours offered to the employee were not acceptable to her and she opted to accept a redundancy.
As stated in the joint decision of Hespe and Button JJ:
47 The question of redundancy is a question of fact and degree, which is to be determined having regard to the particular circumstances. In the present case, Ms Casal was employed to perform duties and tasks as an assistant in an early learning centre. Ms Casal was not engaged to discharge responsibilities and perform a role for which she was paid a fixed salary. Having regard to the nature of an early learning centre, the running of such a centre will necessarily involve somebody performing tasks and duties relating to the care of children. The issue of whether Ms Casal was dismissed because her position had become redundant is not determined by whether other employees continued to perform similar tasks involving similar skills to those of Ms Casal, or that Ms Casal would have continued to perform similar tasks involving similar skills had she accepted one of the alternate positions.
48 In the circumstances of this case, the primary attributes of Ms Casal’s role were not limited to the precise tasks she was to carry out but extended to the scope and scale of her tasks and duties. Ms Casal’s position was to perform duties and tasks on an hourly basis and she was remunerated according to her hours worked. The changes made to Ms Casal’s role involved a reduction of 20% or 40% in her working hours. Contrary to the Commissioner’s criticisms, to refer, as we have, and as the primary judge did, to the reduction in hours (and, consequently, remuneration) in percentage terms is not to determine the question of redundancy by use of a mathematical formula but to illustrate the significance of the change. In Ms Casal’s case, the scope and scale of her role were significantly diminished. The issue of redundancy is a matter of fact and degree. Based on the description of the scheme, the Court is satisfied that the scope of Ms Casal’s part time role had diminished to a degree to which her position had become redundant.
49 This conclusion does not rest on the fact that Ms Casal’s remuneration would have been reduced had she accepted one of the new positions but the fact that, having regard to the nature of her employment, her total hours of work had diminished to a point where for practical purposes it may be said that the reason for her dismissal was because her position had become redundant. As a worker being remunerated based on hours worked, the reduction in Ms Casal’s remuneration flowed from a reduction in her working hours. The reduction in Ms Casal’s remuneration was not a consequence of the same job being performed at a lower cost to the employer, as may occur, for example if an employer terminated one employee and then engaged a replacement to perform the same tasks, functions and duties over the same hours at a lower hourly rate. Rather, the reduction in Ms Casal’s remuneration was a consequence of a reduction in the scope of her position to a point at which it is to be concluded that her former position had become redundant.
50 In reaching this conclusion, we have had regard as part of the holistic analysis to the fact that the new positions offered to Ms Casal would have involved similar tasks that are necessarily associated with caring for children in an early learning centre. We also treated the fact that the scheme involved a change to Ms Casal’s working days as a neutral factor because the nature and extent of those changes are unknown. As we have explained above, given the nature of Ms Casal’s position, the reduction to Ms Casal’s working hours (and, consequently, her remuneration) was such as to show that her former position had become redundant.
The decision seems to broaden the concept of what may be a GRP.
Where a role is retained but materially diminished (by way of hours) a tax treatment appears more open that the previous role had in fact been made redundant and replaced by a different (diminished) role albeit involving similar functions.
Potentially this may also cause employers and former employees to revisit the tax treatment applied to termination scenarios that exhibit characteristics similar to the one considered.
The advantageous tax treatment of a GRP will also certainly encourage seeking a similar outcome.
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