You can only claim the redundancy tax credit (RTC) for redundancy payments derived before 1 October 2011. Claims must be made within four years of receiving the payment.
What is it?
Income earners could be overtaxed when their redundancy payments push them into a higher tax bracket If these payments are taxed at a higher tax rate, without taking into consideration your personal tax rates before and after redundancy, you may have been over taxed.
A simple tax rebate (the redundancy tax credit) was introduced that applies to redundancy payments derived before 1 October 2011.
Your redundancy claim must be made within four years from the date payment was received in order to claim the credit.
Who can apply?
The redundancy tax credit is generally allowed on a redundancy payment that is:
- paid to an employee whose employment is terminated because the position is surplus to the requirements of the person's employer, and
- compensation for the person's loss of employment.
Who cannot apply?
Some payments do not qualify for the redundancy tax credit.
The redundancy tax credit is not allowed for a payment for:
- retirement from employment
- loss of seasonal employment arising from a normal seasonal work cycle
- a contract of employment for a fixed term, or for the duration of a project
- employment for a period following notice of termination of employment
- a redundancy payment paid, directly or indirectly, by an employer who is "associated" (see rules below) or related to the employee
- a redundancy payment received on or after 1 October 2011.
Associated person rules
The tax credit is not allowed for a redundancy payment paid, directly or indirectly, by a person or company who is an "associated person" to you (this includes being related).
Payments that may not qualify for the tax credit include redundancy payments paid directly or indirectly by:
- a company to its director, or to a shareholder-employee
- an employer who is a close relative of the employee, or spouse, or civil union or de facto partner
- a partnership to any of its partners
- a trustee to an employee who is also a beneficiary or a settlor of the trust.
Date published: 26 May 2011