Commissioner of Taxation’s appeal for payout classification dismissed by Federal Court

The issue of contention lay in the nature of the payments the worker received from the school, and whether they should have been applied as a redundancy payment or an employment termination payment, which have different tax implications.

Should the payout be considered for genuine redundancy, the lump sum would have been retained in full, tax-free.

After the initial payout of 13 weeks’ pay, $15,326.96, was classified by the school as an employment termination payment (ETP), the worker initially applied to the ATO, but the application was rejected on the basis that the underlying tasks and duties remained necessary in the alternate position.

The application was further rejected by the Commissioner of Taxation and again on appeal.

However, the worker’s application for review in the Federal Court was ultimately successful, which the Commissioner of Taxation then appealed.

In the primary Federal Court case, Justice Timothy McEvoy found that the three roles offered all involved an unknown change in the days to be worked, with a “material reduction in both hours and remuneration”.

In considering the appeal, the full Federal Court – Justice Catherine Button, Justice Lisa Hespe, and Justice Houda Younan – upheld this view, concluding that the applicant’s position had become genuinely redundant, and “accordingly, the payment the applicant received from their employer in consequence of the voluntary termination of their employment was a genuine redundancy payment”.

In the determination, the full Federal Court said: “It is the ‘position’, not the employee, as a person, that must be the subject of the genuine redundancy”, with the question of redundancy relating to the “continued utility of the job performed by the employee.”

It was also noted that the attributes of the position must be identified as a matter of substance, not form.

“The ordinary concepts of ‘duties’ and ‘responsibilities’ are wide enough to incorporate days and hours of work," the court said.

In this way, it had to be considered whether a change to the position’s collective functions, duties and terms constituted redundancy, with a significant reduction in the hours of work and remuneration possibly reflecting a change to the scope of the responsibilities.

On the role change, the court said: “It is necessary to consider the particular changes to the position to determine whether the role has so changed that the previous position can no longer exist. The degree to which the original role has been changed must be sufficient to conclude that for all practical purposes the role no longer exists.” 

The ATO released the following decision impact statement on 27 May 2026: “The ATO acknowledges the Full Federal Court’s explanation, and accepts that material reductions in hours worked, and, consequently, remuneration, may be relevant factors in making an assessment of genuine redundancy but will not be determinative in all cases”.

As such, the court found that the role had been diminished to the point of redundancy.

The case: Commissioner of Taxation v Baya Casal [2026] FCAFC 11.