Taxation Ruling
IT 2545
Income tax: quotation of tax file numbers in respect of eligible termination payments
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FOI status:
May be releasedFOI number: I 1011389PREAMBLE
Section 221A of the Income Tax Assessment Act (the Act) defines an employee as a person who receives or is entitled to receive salary and wages which in turn are defined to include eligible termination payments. The new tax file number arrangements that apply to employees therefore apply to people in receipt of eligible termination payments (ETPs).
2. The entitlement to receive an ETP constitutes the commencement of an employer/employee relationship for the purposes of the Pay-As-You-Earn provisions of the Act. Accordingly, the tax file number arrangements apply to people who terminate their employment or who apply for withdrawal of funds from a rollover institution on or after 1 February 1989.
3. Where a tax file number is not quoted in respect of an ETP, tax is to be deducted from the taxable component of the payment (the post-June 1983 component less any amount of that component rolled over) at the highest marginal rate plus Medicare levy.
4. The provisions relating to the quoting of tax file numbers in respect of ETPs were linked to regulation 54DAQ of the Income Tax Regulations by the Taxation Laws Amendment (Tax File Numbers) Act 1988. With the exceptions provided by subregulations 54DAQ(6) and (7), regulation 54DAQ provides that before an employer, superannuation fund or rollover institution (the payer) makes an ETP to an employee the payer must, on a statement of termination payment (STP) form prepare details of the ETP showing all of its components. The payer must give this statement to the employee who may fill in the rollover nomination and tax file number and return it to the payer. The payer can then make the payment and issue a group certificate.
5. In practice, employees who have notified their employer that they do not wish to roll over their ETP have received the STP with the payment and group certificate. However, the tax file number arrangements presumed that an employee would be given the opportunity to quote a tax file number on the STP prior to the payment being made.
Alternative method of quoting
6. As a result of the administrative difficulties that these requirements imposed in order to collect tax file numbers, regulation 54DAQ of the Income Tax Regulations has been amended and new regulation 54DAR has been inserted to allow for easier quotation of tax file numbers to payers of ETPs.
7. A new form, the Termination Payment Tax File Number Notification form, facilitates an alternative method for quotation of a tax file number for ETPs. The purpose of the new form is to allow employees to -
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- authorise the employer to transfer the tax file number to the superannuation fund at the time of termination of employment;
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- quote directly to the superannuation fund at the time of termination of employment; or
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- quote at the time a withdrawal request is made to an approved deposit fund or other rollover institution.
8. The arrangement is separate from the STP provisions and, therefore, does not require that the components of the ETP be determined prior to the time a tax file number is quoted. However, the STP provisions will continue to apply and quotation may be made on either the STP or the new form.
RULING
Stationery
9. This Office has produced a standard Termination Payment Tax File Number Notification form. However, it is anticipated that this form may be adapted for incorporation in stationery used by superanuation funds and approved deposit funds. Formal approval by this Office of the adaption of forms is considered unnecessary. Any adaption, however, should include the following matters -
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- a tax file number block;
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- a statement to the effect that the quotation of a tax file number is optional; and
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- a statement notifying the employee that, where he/she chooses not to quote a tax file number, the taxable component of the ETP will be taxed at the highest rate plus Medicare levy.
10. In anticipation of guidelines to be issued by the Privacy Commissioner concerning the destruction of tax file number information, it may be advisable that the tax file number be detachable where other information contained in the stationery is to be retained by the institution for its own records.
Transfer of information
11. The transfer of tax file numbers by employers to superannuation funds prior to termination of employment is not authorised under the Act. Transfer of the new Termination Payment Tax File Number Notification form may occur when notice of termination of employment is given.
12. The transfer of tax file number information between superannuation funds and rollover institutions is not permitted under the law.
Employers
13. Employers may advise their employees to complete the form at any time during their employment. The tax file number need not be written on the form until notice of termination of employment is given and at that time the employer may use his/her records to obtain the number for insertion. Where the number is written on the form, the requirements of the Privacy Act 1988 will apply to the form. On notice of termination of employment the employer will be required to transfer the form to the superannuation fund.
Rollover institutions
14. As stated in paragraph 2, these arrangements also apply to ETPs paid by rollover institutions e.g., approved deposit funds, upon the request for withdrawal of funds. From the time of making the request, the person is, for the purpose of the Pay-As-You-Earn provisions, taken to be an employee of the institution. When making the withdrawal request, the employee may quote a tax file number on either the new form referred to in paragraph 7, which may also be incorporated in the withdrawal stationery of the institution, or on the STP.
15. Once the first request for withdrawal has been made and the tax file number quoted, it is accepted that for the purposes of the Taxation Administration Act it is reasonably necessary to maintain a record of that tax file number in order to comply with the requirements of the taxation law. The employer/employee relationship will, for the purposes of the tax file number legislation, be taken to continue until the issue of the group certificate in respect of the final withdrawal.
16. The maintenance of the tax file number information is subject to guidelines that may be issued by the Privacy Commissioner for the destruction of that information.
COMMISSIONER OF TAXATION
6 July 1989