Since 1 July 2007 employment termination payments cannot be rolled over into super directly. However transitional termination payments (in full or in part) could be contributed to a super fund or used to buy a super annuity until 1 July 2012.
The amount of a transitional termination payment that was directed from the employer to super is known as a directed termination payment in accordance with section 82-10F(1)External Link of the IT(TP)A.
Transitional provisions were established to reduce the risk that employees with an entitlement to a payment on termination as at 9 May 2006 would terminate that employment early in order to access the benefits of the eligible termination payment provisions as they existed before the reforms.
Under section 82-10External Link of the IT(TP)A, a transitional termination payment arises if a person receives a life benefit termination payment from 1 July 2007 and all the following apply:
- the payment is received under either
- a written contract
- a law of Australia, a State, a Territory or another country or an instrument under these laws
- a collective agreement or AWA within the meaning of the Fair Work (Transitional Provisions and Consequential Amendments) Act 2009
- the entitlement has been provided under that contract, law, instrument or agreement as in force just before 10 May 2006
- the payment is received before 1 July 2012.
The transitional provisions only applied to the extent that the contract, law, or agreement in force before 10 May 2006 specified the amount of the payment, or a way to work out a specific amount of the payment.
The methodology must be such that the payment could be objectively worked out. It may allow for choice between different forms of payment (that is, the payment can be in cash or kind).
Up until 20 June 2012 and before making a transitional termination payment the payer was required to give the recipient a pre-payment statement. Section 82-10EExternal Link of the IT(TP)A states that the pre-payment statement must contain the following information:
- the amount (if any) that would be the tax-free component
- the amount (if any) that would be the taxable component
- any other information specified in the regulations
- details of the opportunity to make a directed termination payment choice.
Once a pre-payment statement was been given to a person, they have 30 days to choose to direct all or part of the transitional termination payment into a complying super plan or to purchase a super annuity.
If the person chooses not to provide any payment instructions within 30 days, the transitional termination payment had to be paid in cash, which included in-specie payments such as shares and amounts paid into bank accounts. A choice had to be made using the approved form and given to the payer (that is, the employer).
If the employer received a direction in the approved form within 30 days, they had to immediately comply with the direction and also provide written notice to the receiving entity (that is, super fund) of the total amount to be paid and also the tax-free component of that amount under subsection 82-10F(4)External Link of the IT(TP)A.
Subsection 82-10D(3)External Link of the IT(TP)A states that a directed termination payment is deemed to be received by a person at the time the entity to which it is directed receives the payment.