Employment Termination Payments

1. From 1 July 2012
2. Post 1/7/2007  Employment Termination Payment Caps
3. Post 1/7/2007  Rules - Employment Termination Payments
4. Post 1/7/2007  Life Benefit Employment Termination Payments
5. Post 1/7/2007  Death Benefit Employment Termination Payments
6. To 30/6/2012  Transitional Arrangements - Life Benefit Termination Pay
7. Pre 30/6/2007 Rules - Tax Rates on Post 30/6/1983 Component
8. Pre 30/6/2007 Rules - Tax Rates on Other Components
9. Links to expert information on Employment Termination Payments

The transitional arrangements apply to you if:

 

> a payment on termination is specified in an existing employment contract as at 9 May 2006; and

 

> the payment is made prior to 1 July 2012.

 

Refer to the links below for more details.

 

 

Transitional termination payments may be:

 

> contributed (in full or in part) to a superfund; or

 

> used (in full or in part) to buy a super annuity before 1 July 2012.

 

If this is done it is known as a directed termination payment.

 

 

Transitional ETP Caps	Lower Cap (1)	Upper Cap (2)
2011/2012	$165,000	$1,000,000
2010/2011	$160,000	$1,000,000
2009/2010	$150,000	$1,000,000
2008/2009	$145,000	$1,000,000
2007/2008	$140,000	$1,000,000

 

 

(1) The Employment Termination Payment Cap will be indexed to AWOTE annually.

 

(2) The $1 million will not be indexed.

 

 

The tax treatment of life benefit termination payments that are not rolled over can be summarised as follows:

 

Age	Transitional ETP Lower Cap	The Rest up to $1 million	Excess Above $1 million (2)
Under preservation age# on the last day of the income year in which the payment is made*	Maximum Rate 30%	Maximum Rate 30%	45%
Preservation age# or over on the last day of the income year in which the payment is made*	Maximum Rate 15%	Maximum Rate 30%	45%

 

# Preservation age is the age at which retirees can access their superannuation benefits.  This depends on their date of birth.  Refer to the link below for more information on ‘Preservation Ages’.

 

* Included in Taxable Income for Medicare Levy purposes.

 

 

 

Age	Max. Tax Rate Taxed Element	Max. Tax Rate Untaxed Element
Age under 55*	20%	30%
Age 55 or over:*
-  Less than ETP low rate threshold below	Nil	15%
-  More than ETP low rate threshold below	15%	30%

 

*Included in Taxable Income for Medicare Levy purposes except for the taxed element of the ETP low rate threshold.

 

 

Post 30/6/83 component – age 55 and over

 

Year	Low rate ETP threshold
2006/07	$135,590
2005/06	$129,751
2004/05	$123,808
2003/04	$117,576
2002/03	$112,405
2001/02	$105,843
2000/01	$101,188
1999/00	$97,109
1998/99	$94,189
1997/98	$90,916
1996/97	$86,917
1995/96	$83,574
1994/95	$79,975

 

 

Component	Taxation Rate
CGT exempt	Tax-free
Post-June 1994 Invalidity	Tax-free
Spouse contribution	Tax-free
Undeducted contributions	Tax-free
Concessional	5% included in assessable income and taxed at marginal rate + medicare levy*
Pre-July 1983	5% included in assessable income and taxed at marginal rate + medicare levy*
Death benefit ETP paid to non-dependant*	Taxed element 15% (max)	Untaxed element 30% (max)
Death benefit ETP paid to dependant	Tax-free (within deceased’s pension RBL)
Excessive benefits:*
- Portion that represents post 30/6/83 taxed element		38%
- Remainder of the excess benefit		47%

 

*Included in Taxable Income for Medicare Levy purposes.