• Termination payments surcharge

    The termination payments surcharge is levied on certain components of an employer eligible termination payment. It applies if the sum of your taxable income and certain other amounts are over a certain limit in the relevant financial year.

    It was abolished for termination payments paid on or after 1 July 2005.

    An employer eligible termination payment is a lump sum paid to an employee by an employer upon termination of employment. A 'golden handshake' is an example of an employer eligible termination payment.

    Payments of unused annual leave and unused long service leave are not eligible termination payments.

    The surchargeable amount of an employer eligible termination payment is the amount that relates to your post 20 August 1996 service period and is taken in cash, not rolled over to a super fund, retirement savings account or other super provider.

    The termination payments surcharge does not apply to:

    • a post June 1994 invalidity component of the termination payment
    • a CGT exempt component of the termination payment
    • an eligible termination payment from an employee share acquisition scheme.

    Employer eligible termination payments taken in cash are not surchargeable contributions.

    If your adjusted taxable income exceeds the lower income amount for the relevant financial year, the termination payments surcharge will apply to the post 20 August 1996 portion of the employer eligible termination payment taken in cash.

    The surcharge rate that applies to the termination payment is determined by the amount of your adjusted taxable income.

    The amount of the termination payment subject to the surcharge depends on whether the termination payment was made before or after the legal time in the Australian Capital Territory of 7.30pm on 22 May 2001.

    Formula for termination payments made at or before 7.30pm on 22 May 2001:

    Surchargeable amount of eligible termination payment

    =

    Post 20 August 1996 period x Termination payment
    ________________________________________
     
    Total period

    Formula for termination payments made after 7.30pm on 22 May 2001:

    Surchargeable amount of eligible termination payment

    =

    Post 20 Aug 1996 period x (Termination payment-Excessive component)
    __________________________________________
     
    Total period

    Legislative changes exclude the excessive component from being subject to the termination payments surcharge for payments made after 7.30pm by legal time in the Australian Capital Territory, on 22 May 2001.

    See also:

      Last modified: 01 Sep 2016QC 18956