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ATO Interpretative Decision

ATO ID 2002/726

Superannuation

Termination payments tax: Excessive component of an employer eligible termination payment
FOI status: may be released

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CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.

Issue

Is the 'excessive component' of an employer eligible termination payment (ETP) subject to the termination payments surcharge under subsection 8(1A) of the Termination Payments Tax (Assessment and Collection) Act 1997 (TPT Act)?

Decision

No. The 'excessive component' of an employer ETP made after 7.30 pm by legal time in the Australian Capital Territory (ACT) on 22 May 2001 is not subject to the termination payments surcharge in accordance with subsection 8(1A) of the TPT Act.

Facts

A taxpayer receives an employer ETP on 23 May 2001. The ETP is taken in cash and includes an excessive component that is subject to income tax at the highest marginal rate. The taxpayer subsequently receives a termination payments surcharge assessment in relation to the ETP as their adjusted taxable income (ATI) for the 2001 financial year exceeds the surcharge threshold.

Reasons for Decision

Subsection 8(1) of the TPT Act states that subject to subsection 8(1A), termination payments surcharge is payable on termination payments made to or for a taxpayer. Subsection 8(2) provides that surcharge is only payable if the taxpayer's ATI for the financial year in which the payments are made is greater than the surcharge threshold for that financial year.

A 'termination payment' is defined in subsection 7(2) of the TPT Act to mean the retained amount of an employer ETP made after 7.30pm on 20 August 1996. Under section 31 of the TPT Act, 'retained amount' has the same meaning as that given by section 27AC of the Income Tax Assessment Act 1936 (ITAA36). This is essentially so much of the ETP that is taken in cash and not rolled-over.

Subsection 8(1A) of the TPT Act specifies that in the case of a termination payment made after 7.30pm by legal time in the ACT on 22 May 2001, surcharge is not payable on any part of a termination payment that the Commissioner of Taxation has determined under section 140R of the ITAA36 to be in excess of the taxpayer's reasonable benefits limits. Accordingly, the excessive component of a termination payment made on 23 May 2001 is not subject to the surcharge. The surcharge that is payable on the termination payment is calculated in accordance with subsection 9(3) of the TPT Act.

However where the employer ETP is made at or before 7.30 pm by legal time in the ACT on 22 May 2001 and includes an excessive component, surcharge is payable on the post-20 August 1996 portion of the termination payment (inclusive of the excessive component) in accordance with subsection 9(2) of the TPT Act.

Note: The view contained in this ATO ID will only apply to payments made in income years up to and including the 2004-05 income year as the termination payments surcharge cannot be imposed on payments made in the 2005-06 and later income years.

Date of decision:  31 July 2002

Legislative References:
Income Tax Assessment Act 1936
   section 27AC
   section 140R

Termination Payments Tax (Assessment & Collection) Act 1997
   subsection 7(2)
   subsection 8(1A)
   subsection 8(1)
   subsection 8(2)
   subsection 9(2)
   subsection 9(3)

Other References:
Previously released as CDS10364

Keywords
Superannuation, retirement and employment termination
Eligible termination payments
Termination payments surcharge
ETP excessive component
Reasonable benefit limits

Business Line:  Superannuation

Date of publication:  31 July 2002

ISSN: 1445-2782

history
  Date: Version:
You are here 31 July 2002 Original statement
  29 May 2009 Archived

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