A directed termination payment was not assessable income and not exempt income for that person under section 82-10GExternal Link of the IT(TP)A.
However, under section 295-190External Link, the taxable component of the directed termination payment was included in the assessable income of the super fund and prima facie was therefore a concessional contribution.
Section 292-25External Link of the IT(TP)A contains special rules pertaining to how directed termination payments were included in concessional contributions. These rules confirm that no part of the tax-free component is included.
The first $1 million of the taxable component of the transitional termination payment was also excluded from concessional contributions if it is directed to super.
This $1 million threshold was reduced by the taxable component of every transitional termination payment made to the person between 1 July 2007 and just before the directed termination payment was made.
The $1 million taxable component exclusion from concessional contributions was reduced even in cases when the transitional termination payment was not directed into super. The payee was able to give instructions as to the portion of the transitional termination payment that is directed and also the composition (tax free or taxable).
Example: transitional termination payments
Bill receives a pre-payment statement from his employer stating that he is entitled to receive a transitional termination payment of $1.5 million.
It consists of a $250,000 tax-free component and $1.25 million taxable component.
If Bill chooses not to provide directions within 30 days, the employer must pay the entire amount to Bill (that is, as income).
The amount will be taxed as a transitional termination payment.
End of example
Example continued: directed termination payment
Alternatively, Bill could direct that the entire $1.5 million is paid into a complying super plan as a directed termination payment.
The $250,000 tax-free amount is not assessable income for the fund and does not count towards any of the contributions caps for Bill.
The first $1 million of the taxable component is assessable income of the super fund but will not count towards the concessional contributions cap (assuming Bill has not received any previous transitional termination payments).
The $250,000 balance of the taxable component is assessable income for the super fund and will also count towards Bill's concessional contributions cap.
Bill will be liable to excess concessional contributions tax of 31.5% on that part of the $250,000 that exceeds the indexed concessional contributions cap (or the transitional contributions cap if he is 50 years old or older on the last day of the income year in which the payment is made).
This part will also count towards his non-concessional contributions.
End of example
Example continued: directing money
Bill could have chosen to direct $1.25 million into super consisting of $1 million of the taxable component and the $250,000 tax-free component and receive the remaining $250,000 taxable component as cash.
Assuming no other contributions were made the $250,000 would not have been assessable income of the fund and would not have counted towards any of the contributions caps.
The $1 million taxable component would be included in the fund's assessable income but under the transitional provisions would not count towards Bill's concessional contributions.
End of example