Genuine Redundancy or ETP?

A recent decision of the Full Court of the Federal Court Commissioner of Taxation v Baya Casal [2026] FCAFC 11 (20 February 2026) has sharpened what employers must examine when deciding whether a redundancy payment is a tax-free “genuine redundancy payment” or a taxable employment termination payment (ETP).

In this case the question turned on whether the employee’s position was genuinely abolished, assessed by the scope and scale of the role, not just whether similar tasks continued or could be performed by others.

During the restructure the employer offered three alternative roles with similar duties but materially fewer hours (and reduced pay), which the employee declined. The employer treated the payout as an ETP and the ATO initially agreed, reasoning that because similar duties remained to be performed, the redundancy was not “genuine”.

The Federal Court found the position was genuinely redundant holding that the decisive focus is the position’s scope and scale—here, the reduction of hours by 20%–40% was a material change indicating the previous position had lost its former character and utility.

The issue is one of fact and degree and it is not determined merely by whether similar tasks continue elsewhere or could be performed under different, materially diminished roles.

Key takeaways for assessing “genuine redundancy” versus ETP

• Focus on the position, not just tasks: The “proper focus” is the job or position—understood as the collection of functions, duties and responsibilities—rather than the mere fact that some similar tasks continue within the business.

• Scope and scale matter: Material reductions in hours (and thereby remuneration) can signify that the original position has been abolished in substance, even if some tasks remain somewhere in the organisation.

• Fact-and-degree assessment: Even though in this case there was an identified reduction in hours of 20% to 40% the court made clear that there is no bright-line or mathematical formula; the question turns on whether, in reality, the employer no longer needs the position as it was formerly constituted.

• Redeployment offers: Alternative roles that are materially diminished (for example, significantly fewer hours) may support, rather than undermine, a finding that the original position is genuinely redundant if they reflect that the previous role’s scope has genuinely shrunk.

• Complexity and definitions: The absence of a statutory definition of “genuine redundancy” adds complexity, increasing the importance of careful, evidence-based decision-making and documentation.

Our Take

This decision is a timely reminder to be cautious when classifying termination payments. If in doubt, get advice.

Treating a payment as an ETP simply because similar tasks remain can be wrong if the original position’s scope and scale have materially changed.

Conversely, not every restructure will qualify as a genuine redundancy. You cant just ‘sweeten the deal’ by calling it a redundancy when its not (even when part of some type of mischaracterised separation agreement. Employers must be able to show that the position as it existed has been abolished as a matter of fact and degree.

Action Items

1. Map the position before and after: Clearly document the original position’s key functions, responsibilities, hours and remuneration, and the post-restructure operating model. Identify any material shrinkage in scope and scale, such as a reduction in hours.

2. Evidence the business rationale: Record why the employer no longer requires the position in its former form (for example, genuine restructure, efficiency, budget). Avoid framing the change as merely moving the same job to another person.

3. Evaluate redeployment options carefully: If offering alternative roles, assess and document whether they are materially different (hours, responsibilities, seniority, pay). Material diminutions may support genuine redundancy; minimal changes may point to an ETP classification.

4. Make a fact-and-degree determination: There is no formula. Apply a holistic assessment of whether the position has been abolished, not just whether similar tasks exist elsewhere in the business.

5. Align tax treatment with the evidence: If the position is genuinely abolished, tax the redundancy pay as a genuine redundancy; if not, treat as an ETP. Keep the internal file ready to substantiate the classification if queried by the ATO.

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