Tax Laws Amendment (Simplified Superannuation) Act 2007 (9 of 2007)
Schedule 2 Employment termination payments
Part 2 Main transitional and consequential amendments
Income Tax (Transitional Provisions) Act 1997
3 After Part 2-25
Insert:
Part 2-40 - Rules affecting employees and other taxpayers receiving PAYG withholding payments
Division 82 - Pre-10 May 2006 entitlements to life benefit termination payments
Table of Subdivisions
82-A Application of Division
82-B Transitional termination payments: general
82-C Pre-payment statements
82-D Directed termination payments made to superannuation and other entities
82-E Pre-10 May 2006 entitlements and employment termination payments made after 1 July 2012
Subdivision 82-A - Application of Division
Table of sections
82-10 Pre-10 May 2006 entitlements - transitional termination payments
82-10 Pre-10 May 2006 entitlements - transitional termination payments
(1) This Division applies in relation to a life benefit termination payment received by you on or after 1 July 2007 if:
(a) the payment is received by you because you are entitled to it under a written contract, a law of the Commonwealth, a State, a Territory or another country, an instrument under such a law or a workplace agreement within the meaning of the Workplace Relations Act 1996; and
(b) the entitlement is provided for under that contract, law, instrument or agreement as in force just before 10 May 2006.
(2) However, this Division does not apply in relation to a life benefit termination payment received by you on or after 1 July 2012 (except to the extent provided by Subdivision 82-E).
(3) This Division applies in relation to a life benefit termination payment only to the extent that the contract, law or agreement as in force just before 10 May 2006 specifies the amount of the payment, or a way to work out a specific amount of the payment.
(4) For the purpose of subsection (3), a specific amount can be worked out in ways including either or both of the following:
(a) by a method or formula for working out the amount;
(b) by provision for you or another person (or entity) to make a choice between forms of payment allowing amounts to be worked out as provided by subsection (3) and paragraph (a) of this subsection.
Example: For paragraph (b), a specific amount of a life benefit termination payment that you receive on 1 July 2007 can be worked out from the terms of your written contract if the contract provided (just before 10 May 2006) for you to choose between payment in the form of a cash amount of $100,000 or the transfer to you of 10,000 shares in a specified company.
Note: Section 80-15 of the Income Tax Assessment Act 1997 allows for employment termination payments to include the transfer of property (for example, shares). If so, the market value of the property is included in the amount of the payment (except any part of the property for which separate consideration has been given).
(5) To the extent that this Division applies to a life benefit termination payment, Subdivision 82-A of the Income Tax Assessment Act 1997 does not apply to the payment (subject to Subdivision 82-E of this Act).
(6) In this Division:
transitional termination payment means:
(a) a life benefit termination payment to which this Division applies; or
(b) if this Division applies to only part of a life benefit termination payment - that part of the payment.
Subdivision 82-B - Transitional termination payments: general
Table of sections
82-10A Recipient has reached preservation age
82-10B Lower cap amount
82-10C Recipient under preservation age
82-10D Upper cap amount
82-10A Recipient has reached preservation age
Application
(1) This section applies to a transitional termination payment you receive (except any part of the payment that is a directed termination payment) if you are your preservation age or older on the last day of the income year in which you receive the payment.
Note 1: You do not pay income tax on directed termination payments: see section 82-10G.
Note 2: Under section 82-10C, you may also be entitled to a tax offset on the taxable component of a transitional termination payment you receive in an income year before the year in which you reached your preservation age.
Tax free component
(2) The tax free component of the payment is not assessable income and is not exempt income.
Taxable component
(3) The taxable component of the payment is assessable income.
(4) You are entitled to a tax offset that ensures that the rate of income tax on the amount mentioned in subsection (6) (the low rate part) does not exceed 15%.
(5) You are entitled to a tax offset that ensures that the rate of income tax on the amount mentioned in subsection (7) (the middle rate part ) does not exceed 30%.
Note: The remaining part is taxed at the top marginal rate in accordance with the Income Tax Rates Act 1986.
(6) The low rate part is so much of the taxable component of the payment as does not exceed your lower cap amount under section 82-10B.
(7) The middle rate part is so much of the taxable component of the payment as:
(a) exceeds your low rate part (if any); and
(b) does not exceed the amount worked out as follows:
Note: If you have received another life benefit termination payment in the same income year (or in an earlier income year) that is not a transitional termination payment, your entitlement to a tax offset under this section is not affected by your entitlement (if any) to a tax concession for the other payment (under section 82-10 of the Income Tax Assessment Act 1997).
82-10B Lower cap amount
Initial lower cap amount is the ETP cap for the income year
(1) Your lower cap amount in relation to a transitional termination payment you receive at a time in an income year is the ETP cap amount for the year, reduced in accordance with this section.
Note: For the ETP cap amount, see section 82-160 of the Income Tax Assessment Act 1997.
Reduction of lower cap amount in relation to each payment
(2) Reduce your lower cap amount in relation to the payment (but not below zero):
(a) by the amount (if any) (the cap excess ) worked out under subsection (3); and
(b) by so much of the total amounts of transitional termination payments (if any) that you received at an earlier time (whether in the income year or in an earlier income year) for which you are entitled to a tax offset under subsection 82-10A(4).
(3) For paragraph (2)(a), the cap excess is worked out using this method:
Method statement
Step 1. Work out the total of the taxable components of all the amounts (if any) of transitional termination payments received by you (including any directed termination payments received on your behalf) in any income year before the income year in which you reached your preservation age.
Step 2. Work out the total of the taxable components of all the directed termination payments (if any) received on your behalf at an earlier time, in the income year in which you reached your preservation age or later.
Step 3. Work out the amount (the cap difference ) by which $1,000,000 exceeds the ETP cap for the income year in which you receive the payment to which subsection (1) applies.
Step 4. The cap excess is the amount (not less than zero) by which the sum of the amounts in steps 1 and 2 exceeds the cap difference in step 3.
Directed termination payments - time of receipt when received by entity to which they are directed
(4) For the purposes of this section, a directed termination payment is taken to be received on your behalf at the time the entity to which it is directed receives the payment.
ETP cap not to be reduced under section 82-10 of the Income Tax Assessment Act 1997
(5) For the purposes of this section, disregard any reduction of the ETP cap amount under section 82-10 of the Income Tax Assessment Act 1997.
82-10C Recipient under preservation age
Application
(1) This section applies to a transitional termination payment you receive (except any part of the payment that is a directed termination payment) if you are under your preservation age on the last day of the income year in which you receive the payment.
Note: You do not pay income tax on directed termination payments: see section 82-10G.
Tax free component
(2) The tax free component of the payment is not assessable income and is not exempt income.
Taxable component
(3) The taxable component of the payment is assessable income.
(4) You are entitled to a tax offset that ensures that the rate of income tax on the amount mentioned in subsection (5) does not exceed 30%.
Note: The remainder of the taxable component is taxed at the top marginal rate in accordance with the Income Tax Rates Act 1986.
(5) The amount is so much of the taxable component of the payment as does not exceed your upper cap amount under section 82-10D.
Note: If you have received another life benefit termination payment in the same income year (or in an earlier income year) that is not a transitional termination payment, your entitlement to a tax offset under this section is not affected by your entitlement (if any) to a tax concession for the other payment (under section 82-10 of the Income Tax Assessment Act 1997).
82-10D Upper cap amount
Initial upper cap amount is $1,000,000
(1) Your upper cap amount in relation to a transitional termination payment you receive at a time in an income year is $1,000,000, reduced in accordance with this section.
Reduction of upper cap amount for each payment
(2) Reduce your upper cap amount in relation to the payment (but not below zero):
(a) by the total of all the amounts (if any) included in your assessable income under subsection 82-10C(3) and subsection 82-10A(3) that you received at an earlier time (whether in the income year or in an earlier income year); and
(b) by the total amount of the taxable components of all directed transitional payments (if any) received on your behalf at an earlier time (whether in the income year or in an earlier income year).
Directed termination payments - time of receipt when received by entity to which they are directed
(3) For this section, a directed termination payment is taken to be received on your behalf at the time the entity to which it is directed receives the payment.
Subdivision 82-C - Pre-payment statements
Table of sections
82-10E Transitional termination payments - pre-payment statements
82-10E Transitional termination payments - pre-payment statements
(1) This section applies if an entity (the payer ) proposes to pay a transitional termination payment to an individual.
(2) The payer must give the individual a statement (a pre-payment statement ) meeting the requirements of this section.
(3) The statement must include the following information:
(a) the amount (if any) that would be the tax free component of the transitional termination payment;
(b) the amount (if any) that would be the taxable component of the transitional termination payment;
(c) any other information specified in the regulations.
(4) The statement must also include details of the opportunity to make a choice in accordance with section 82-10F.
Subdivision 82-D - Directed termination payments made to superannuation and other entities
Table of sections
82-10F Directed termination payments
82-10G Directed termination payments not assessable income and not exempt income
82-10F Directed termination payments
(1) A transitional termination payment (or part of such a payment) is a directed termination payment if:
(a) the individual chooses, in accordance with this section, to direct the payment (or part of the payment) to be made; and
(b) the payment (or part of the payment) is made on the individual’s behalf as directed.
Choice to make payment
(2) An individual may choose, within 30 days after a pre-payment statement about a transitional termination payment is given to the individual under section 82-10E, to direct the payer to use all or part of the payment to make a payment on behalf of the individual:
(a) to a complying superannuation plan; or
(b) to purchase a superannuation annuity.
(3) To make the choice, the individual must:
(a) make it in the approved form; and
(b) give the completed form to the payer.
(4) The payer must, immediately after receiving a completed form under subsection (3):
(a) give the entity (or entities) to which payment is directed written notice of the amount that is to be paid, and of the tax free component of the amount; and
(b) comply with the direction (or directions) in the form.
82-10G Directed termination payments not assessable income and not exempt income
A directed termination payment made on your behalf, that you are taken to receive under section 80-20 of the Income Tax Assessment Act 1997, is not assessable income and is not exempt income.
Note 1: Directed termination payments are paid into a complying superannuation plan (or to purchase a superannuation annuity) on your behalf: see section 82-10F.
Note 2: The taxable component of the payment is included in the assessable income of the entity receiving the payment: see section 295-190 of the Income Tax Assessment Act 1997.
Note 3: In addition, income tax may be payable on a benefit you later receive from the plan to which the directed termination payment is made: see Divisions 301-307 of the Income Tax Assessment Act 1997.
Subdivision 82-E - Pre-10 May 2006 entitlements and employment termination payments made after 1 July 2012
Table of sections
82-10H Transitional termination payments may reduce ETP cap amount for payments under section 82-10 after 1 July 2012
82-10H Transitional termination payments may reduce ETP cap amount for payments under section 82-10 after 1 July 2012
(1) This section deals with the application of paragraph 82-10(4)(b) of the Income Tax Assessment Act 1997 to an income year beginning on or after 1 July 2012.
(2) For the purposes of that paragraph, the ETP cap amount is taken to be further reduced (but not below zero) by the amount mentioned in subsection (3) (the concessional amount ) of any transitional termination payment made in consequence of the same employment termination as the employment termination to which the paragraph applies.
(3) The concessional amount of a transitional termination payment is the part (if any) of the taxable component of the payment for which you are entitled to a tax offset under section 82-10A or 82-10C of this Act.