What this ruling covers
The Australian Taxation Office has issued Class Ruling CR 2026/73, which explains how income tax applies to termination payments made by the Mechanical Electrical Redundancy Trust (MERT) to its members.
MERT is a redundancy fund used by employers in the mechanical and electrical industry. Employers make weekly contributions to the fund on behalf of employees. When a worker's employment ends, MERT pays out the balance of their account.
The ruling confirms whether a MERT payout is treated as an Employment Termination Payment (ETP) or a Genuine Redundancy Payment for income tax purposes.
Period of application
The ruling applies from 1 July 2025 to 30 June 2029.
Key classifications
The ruling distinguishes between two member categories for the purpose of tax treatment on termination:
- GRA Members - where a payment may qualify as a Genuine Redundancy Payment
- ETP Members - where a payment is treated as an Employment Termination Payment
The reason for an employee's departure affects which classification applies.
Genuine Redundancy Payments and the tax-free cap
Where a worker is a GRA Member under pension age and is genuinely made redundant, the ruling addresses whether the MERT payment falls under the tax-free cap. The formula in subsection 83-170(3) of the Income Tax Assessment Act 1997 determines the cap amount. The portion of the payment under that cap is not taxed as an ETP.
Timing of payments
The ruling specifies conditions for payments made more than 12 months after termination. For such a payment to retain its ETP or Genuine Redundancy Payment tax treatment rather than being taxed as ordinary income at marginal rates, the ruling states that the member must have lodged their application with the trustee within 12 months of becoming entitled, and that payment is made as soon as practicable or within 2 years of termination.
MERT Trust Deed amendments
The ruling references proposed amendments to the MERT Trust Deed, updated July 2025. Those amendments affect how employees are classified as GRA Members or ETP Members, which in turn affects their tax treatment on termination.
Key actions
- Employers in the mechanical or electrical industry contributing to MERT are required to confirm with their payroll adviser or bookkeeper how termination payments from MERT are classified on payment summaries - as ETPs or Genuine Redundancy Payments - based on the reason for the employee's departure.
- Where a MERT payment is made more than 12 months after termination, the member's application with the trustee must have been lodged within 12 months of becoming entitled, and payment must be made as soon as practicable or within 2 years of termination, to avoid the payment being taxed as ordinary income at marginal rates.
- The proposed amendments to the MERT Trust Deed (updated July 2025) determine whether affected employees are classified as GRA Members or ETP Members going forward.
- The full ruling is available at https://www.ato.gov.au/law/view/document?docid=CLR/CR202673/NAT/ATO/00001 and contains the complete technical explanation and legislative references.
This is a plain-English summary for information only, not legal or compliance advice. Always check the official source or consult a qualified professional.