Warning: This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.
This guide is for employees who receive a lump sum payment, called an eligible termination payment (ETP), from an employer.
This list of definitions explains the terms we use in this guide.
Agent
An agent may be an accredited financial planner, a tax agent, an accountant or an authorised representative.
Annuity
An annuity is a series of payments bought with a lump sum, usually from a life insurance company or registered organisation. For reasonable benefit limits, an annuity only includes those purchased wholly or partly with ETPs which have been rolled over.
Approved deposit fund (ADF)
A fund which can accept rolled over ETPs to preserve the benefits, or to defer the tax liability on these payments.
Assessable amount
For ETPs, this is the amount of the ETP cash payment that an individual must include in their income tax return.
Bona fide redundancy
Bona fide redundancy has the following characteristics the:
- employee must have been dismissed from a job, not left voluntarily
- employee must have been made redundant (their work has ceased or their workplace has been relocated), and
- dismissal must have been made before the employee had to retire.
Contribution
Money that is put into superannuation savings usually by your employer or another person on your behalf or by you (contributions made by you are referred to as personal contributions).
Eligible service period
This is usually the period of time between the day your employment started to the day your employment ended. it is used by your employer to work out how much of your ETP is linked to your period of employment before 1 July 1983 and your period of employment after 30 June 1983.
Eligible termination payment (ETP)
A lump sum benefit (payment) made by an employer to an employee, as a result of the termination of employment or after the death of the person who was an employee.
Employee
A person who receives salary or wages.
Employer
A person (or group) who pays people salary or wages.
Excessive component
The part of an eligible termination payment which exceeds the recipient’s reasonable benefit limit.
Golden handshake
An eligible termination payment which is a voluntary payment made to an employee on retirement or termination of employment.
Low rate threshold
The limit for lower taxation treatment of the post-June 1983 component of an eligible termination payment. The low rate threshold is only applicable for individuals 55 years of age or over at the date of payment. It is a lifetime limit that is indexed each financial year.
Pay as you go (PAYG)
Is a single, integrated system for reporting and paying withholding amounts and tax on business and investment income.
Pension
A series of regular payments made as an income stream. It may be provided by a superannuation fund or retirement savings account.
Reasonable benefit limits
The maximum amount of retirement and termination of employment benefits an individual can receive over their lifetime at concessional (reduced) tax rates.
Roll over
Is another term for putting your eligible termination payment directly into superannuation savings instead of receiving it in cash.
Superannuation savings
Money you are saving with a superannuation fund for your retirement. Usually made up of your personal contributions, contributions by your employers, any eligible termination payments you roll over into your superannuation savings and interest earned on this money.
Termination of employment
Can occur when an employee retires, when an employee voluntarily stops working for an employer, when an employer dismisses an employee, or by mutual agreement.
Last Modified: Sunday, 23 July 2006
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