ATO Interpretative Decision

ATO ID 2001/41 (Withdrawn)

Superannuation

• This ATO ID is withdrawn from the database as it is a simple restatement of the law and does not contain an interpretative decision.
  Also please note that the legislative provisions to which the ATO ID refers have been repealed for the 2007/08 and later income years.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

The rate of tax that should be applied to an eligible termination payment (ETP) paid by a superannuation fund.

Decision

Any pre-July 1983 component of an ETP (pre-component) is taxable to the extent that: 5% of the retained amount of that component is included in assessable income for the year of income and taxed at marginal rates of income tax (subsection 27C(1) Income Tax Assessment Act 1936 (ITAA 1936)).

The rate of tax on the post-June 1983 component of an ETP (post-component) depends on the age of the taxpayer and, if aged over 55 years of age, on the amount of the component and whether it is paid from a taxed or untaxed source. Generally, the post-component is fully assessable under subsection 27B(1) (ITAA 1936) and taxable at full marginal income rates but for those over 55, subject to an entitlement to a rebate under sections 159S to section 159SG (ITAA 1936).

Where a post-component is paid from a taxed source, the rebate, if the taxpayer is 55 years or older, effectively limits the rate of tax to nil for income up to the relevant 'threshold' amount. A 15% rate of tax is payable on the balance of the post-component with the Medicare levy only applicable to the portion subject to the 15% rate (section 27AB (ITAA 1936)).

Facts

The ETP in this particular case had both a pre-component and a post-component paid from a taxed source and the taxpayer was over 55 years of age when the ETP was received. The taxpayer had made ETP withdrawals in previous years but still had a portion of the relevant threshold for the purposes of the rebate which could be utilised during the year of income.

Reasons For Decision

For the pre-component of the ETP, 5% was included in the taxpayer's assessable income and was subject to tax at the taxpayer's marginal rate of tax. For the post-component, the threshold available in any applicable year is the closing balance of the previous year's threshold plus any increase in the upper limit for the current year arising from indexation. The threshold is successively reduced by earlier withdrawals of ETPs if the taxpayer is aged 55 years or older when the ETPs are received.

The balance of the threshold was applied to part of the post-component of the ETP as the taxpayer has utilised most of the available threshold level from withdrawals of ETPs in previous years of income. The remainder of the post-component was taxed at a rate of 15% plus Medicare levy.

Legislative References:
Income Tax Assessment Act 1936
   Part III section 159SA

Keywords
ETP taxed element
ETP untaxed element
ETP pre July 1983 component
ETP post June 1983 component
Eligible termination payments
ETP rebates

Business Line:  Superannuation

Date of publication:  4 June 2001

ISSN: 1445-2782