Tax Laws Amendment (Simplified Superannuation) Act 2007 (9 of 2007)

Schedule 2   Employment termination payments

Part 1   Main amendments

Income Tax Assessment Act 1997

1   After Part 2-25

Insert:

Part 2-40 - Rules affecting employees and other taxpayers receiving PAYG withholding payments

Division 80 - General rules

Table of Subdivisions

Guide to Division 80

Guide to Division 80

80-1 What this Division is about

This Division sets out rules that apply throughout the Part. The rules are about holding an office, the termination of employment, the transfer of property and receiving and making payments.

Table of sections

Operative provisions

80-5 Holding of an office

80-10 Application to the termination of employment

80-15 Transfer of property

80-20 Payments for your benefit or at your direction or request

Operative provisions

80-5 Holding of an office

If a person holds (or has held) an office, this Part applies to the person in the same way as it would apply if the person were (or had been) employed.

80-10 Application to the termination of employment

For the purposes of this Part, treat the termination of employment as including:

(a) retirement from employment; and

(b) the cessation of employment because of death.

80-15 Transfer of property

(1) Any of the following payments covered by this Part (but no others covered by this Part) can include a transfer of property:

(a) an *employment termination payment;

(b) a *genuine redundancy payment;

(c) an *early retirement scheme payment;

(d) a payment covered by Subdivision 83-D (Foreign termination payments);

(e) a payment that would be an employment termination payment but for paragraph 82-130(1)(b) (see Subdivision 83-E).

Note: An unused annual leave payment or an unused long service leave payment cannot include a transfer of property.

(2) If it does, the amount of the payment includes the *market value of the property.

(3) The *market value is reduced by the value of any consideration given for the transfer of the property.

80-20 Payments for your benefit or at your direction or request

(1) This section applies for the purposes of:

(a) determining whether Division 82 or 83 applies to a payment; and

(b) determining whether a payment mentioned in Division 82 or 83 is made to you, or received by you.

(2) A payment is treated as being made to you, or received by you, if it is made:

(a) for your benefit; or

(b) to another person or to an entity at your direction or request.

Division 82 - Employment termination payments

Table of Subdivisions

Guide to Division 82

82-A Employment termination payments: life benefits

82-B Employment termination payments: death benefits

82-C Key concepts

Guide to Division 82

82-1 What this Division is about

This Division tells you how employment termination payments are treated for the purpose of income tax.

Subdivision 82-A - Employment termination payments: life benefits

Guide to Subdivision 82-A

82-5 What this Subdivision is about

If you receive a life benefit termination payment, part of the payment may be tax free (the tax free component).

You are entitled to a tax offset on the remaining part of the payment (the taxable component), subject to limitations.

The extent of your entitlement to the offset depends on your age in the year you receive the offset, on the total amount of payments you receive in the same year, and on the total amount of payments you receive in consequence of the same employment termination.

Table of sections

Operative provisions

82-10 Taxation of life benefit termination payments

Operative provisions

82-10 Taxation of life benefit termination payments

Tax free component

(1) The *tax free component of a *life benefit termination payment you receive is not assessable income and is not *exempt income.

Taxable component

(2) The *taxable component of the payment is assessable income.

(3) You are entitled to a *tax offset that ensures that the rate of income tax on the amount mentioned in subsection (4) does not exceed:

(a) if you are your *preservation age or older on the last day of the income year in which you receive the payment - 15%; or

(b) otherwise - 30%.

Note: The remainder of the taxable component is taxed at the top marginal rate in accordance with the Income Tax Rates Act 1986.

(4) The amount is so much of the *taxable component of the payment as does not exceed the lesser of:

(a) the *ETP cap amount, reduced (but not below zero) by the amount worked out under this subsection for each *life benefit termination payment you have received earlier in the income year; and

(b) the ETP cap amount, reduced (but not below zero) by the amount worked out under this subsection for each life benefit termination payment you have received earlier in consequence of the same employment termination, whether in the income year or an earlier income year.

Note 1: For the ETP cap amount, see section 82-160.

Note 2: If you have also received a death benefit termination payment in the same income year, your entitlement to a tax offset under this section is not affected by your entitlement (if any) to a tax concession for the death benefit termination payment (under section 82-65 or 82-70).

Note 3: Certain other life benefit termination payments made before 1 July 2012 may be treated as earlier payments under paragraph (4)(b): see section 82-10H of the Income Tax (Transitional Provisions) Act 1997.

Subdivision 82-B - Employment termination payments: death benefits

Guide to Subdivision 82-B

82-60 What this Subdivision is about

If you receive a death benefit termination payment after the death of a person, part of the payment may be tax free (the tax free component).

You are entitled to a tax offset on the remaining part of the payment (the taxable component), subject to limitations.

The extent of your entitlement to the offset depends on whether or not you were a death benefits dependant of the deceased, and on the total amount of payments you receive in consequence of the same employment termination.

If a death benefit termination payment is payable to the trustee of the estate of the deceased for the benefit of another person, the payment is taxed in the hands of the trustee in the same way as it would be taxed if it had been paid directly to the other person.

Table of sections

Operative provisions

82-65 Death benefits for dependants

82-70 Death benefits for non-dependants

82-75 Death benefits paid to trustee of deceased estate

Operative provisions

82-65 Death benefits for dependants

Tax free component

(1) The *tax free component of a *death benefit termination payment that you receive after the death of a person of whom you are a *death benefits dependant is not assessable income and is not *exempt income.

Taxable component

(2) If you receive a *death benefit termination payment after the death of a person of whom you are a *death benefits dependant:

(a) the part of the *taxable component of the payment mentioned in subsection (3) is not assessable income and is not *exempt income; and

(b) the remainder of the taxable component (if any) of the payment is assessable income.

Note: The remainder of the taxable component is taxed at the top marginal rate in accordance with the Income Tax Rates Act 1986.

(3) The amount is so much of the *taxable component of the payment as does not exceed the *ETP cap amount.

Note: For the ETP cap amount, see section 82-160.

(4) The *ETP cap amount is reduced (but not below zero) by the amount worked out under subsection (3) for each *death benefit termination payment (if any) you have received earlier in consequence of the same employment termination, whether in the income year or an earlier income year.

Note 1: See subsection 82-75(2) for the tax treatment of any amount by which you may have benefited from an employment termination payment to the trustee of the estate of the deceased.

Note 2: If you have also received a life benefit termination payment in the same income year, your entitlement to a tax concession under this section is not affected by your entitlement (if any) to an offset for the life benefit termination payment (under section 82-10).

82-70 Death benefits for non-dependants

Tax free component

(1) The *tax free component of a *death benefit termination payment that you receive after the death of a person of whom you are not a *death benefits dependant is not assessable income and is not *exempt income.

Taxable component

(2) If you receive a *death benefit termination payment after the death of a person of whom you are not a *death benefits dependant, the *taxable component of the payment is assessable income.

(3) You are entitled to a *tax offset that ensures that the rate of income tax on the amount mentioned in subsection (4) 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.

(4) The amount is so much of the *taxable component of the payment as does not exceed the *ETP cap amount.

Note: For the ETP cap amount, see section 82-160.

(5) The *ETP cap amount is reduced (but not below zero) by the amount worked out under subsection (4) for each *death benefit termination payment (if any) you have received earlier in consequence of the same employment termination, whether in the income year or an earlier income year.

Note 1: See subsection 82-75(3) for the tax treatment of any amount by which you may have benefited from an employment termination payment to the trustee of the estate of the deceased.

Note 2: If you have also received a life benefit termination payment in the same income year, your entitlement to a tax offset under this section is not affected by your entitlement (if any) to an offset for the life benefit termination payment (under section 82-10).

82-75 Death benefits paid to trustee of deceased estate

(1) This section applies to you if:

(a) you are the trustee of a deceased estate; and

(b) a *death benefit termination payment is made to you in your capacity as trustee.

Note: See also subsection 101A(3) of the Income Tax Assessment Act 1936.

Dependants of deceased benefit from payment

(2) To the extent that 1 or more beneficiaries of the estate who were *death benefits dependants of the deceased have benefited, or may be expected to benefit, from the payment:

(a) the payment is treated as if it had been made to you as a person who was a death benefits dependant of the deceased; and

(b) the payment is taken to be income to which no beneficiary is presently entitled.

Note: Section 82-65 deals with the taxation of employment termination payments made to persons who are death benefits dependants of deceased persons.

Non-dependants of deceased benefit from payment

(3) To the extent that 1 or more beneficiaries of the estate who were not *death benefits dependants of the deceased have benefited, or may be expected to benefit, from the payment:

(a) the payment is treated as if it had been made to you as a person who was not a death benefits dependant of the deceased; and

(b) the payment is taken to be income to which no beneficiary is presently entitled.

Note: Section 82-70 deals with the taxation of employment termination payments made to persons who are not death benefits dependants of deceased persons.

Subdivision 82-C - Key concepts

Guide to Subdivision 82-C

82-125 What this Subdivision is about

This Subdivision defines an employment termination payment as a payment made in consequence of the termination of a person’s employment that is received no later than 12 months after the termination (though the 12 month restriction is relaxed in some circumstances).

An employment termination payment can be a life benefit termination payment (received by the person whose employment is terminated) or a death benefit termination payment (received by another person after the death of a person whose employment is terminated).

Certain types of payments are declared not to be employment termination payments.

Various other terms used in describing the taxation treatment of employment termination payments are defined in the Subdivision.

Table of sections

Operative provisions

82-130 What is an employment termination payment ?

82-135 Payments that are not employment termination payments

82-140 Tax free component of an employment termination payment

82-145 Taxable component of an employment termination payment

82-150 What is an invalidity segment of an employment termination payment?

82-155 What is a pre-July 83 segment of an employment termination payment?

82-160 What is the ETP cap amount ?

Operative provisions

82-130 What is an employment termination payment ?

(1) A payment is an employment termination payment if:

(a) it is received by you:

(i) in consequence of the termination of your employment; or

(ii) after another person’s death, in consequence of the termination of the other person’s employment; and

(b) it is received no later than 12 months after that termination (but see subsection (4)); and

(c) it is not a payment mentioned in section 82-135.

Note 1: If a payment would be an employment termination payment but for paragraph (b), see subsection (4) and section 83-295.

Note 2: The holding of an office is treated as employment for this Part: see section 80-5. Also, the termination of employment is treated as including the termination of employment by retirement or by death: see section 80-10.

Types of employment termination payment

(2) A life benefit termination payment is an *employment termination payment to which subparagraph (1)(a)(i) applies.

(3) A death benefit termination payment is an *employment termination payment to which subparagraph (1)(a)(ii) applies.

Exemption from 12 month rule

(4) Paragraph (1)(b) does not apply to you if:

(a) you are covered by a determination under subsection (5) or (7); or

(b) the payment is a *genuine redundancy payment or an *early retirement scheme payment.

Note: The part of a genuine redundancy payment or an early retirement scheme payment worked out under section 83-170 is not an employment termination payment: see section 82-135.

(5) The Commissioner may determine, in writing, that paragraph (1)(b) does not apply to you if the Commissioner considers the time between the employment termination and the payment to be reasonable, having regard to the following:

(a) the circumstances of the employment termination, including any dispute in relation to the termination;

(b) the circumstances of the payment;

(c) the circumstances of the person making the payment;

(d) any other relevant circumstances.

(6) A determination under subsection (5) is not a legislative instrument.

(7) The Commissioner may, by legislative instrument, determine that paragraph (1)(b) does not apply to either or both of the following, as specified in the determination:

(a) a class of payments;

(b) a class of recipients of payments.

(8) A determination under subsection (7) may provide for paragraph (1)(b) not to apply in circumstances relating to any (or all) of the following, as specified in the determination:

(a) a class of employment termination (including a class described by reference to disputes of a specified type);

(b) a class of payments;

(c) a class of persons making payments;

(d) the period after the employment termination until payment is received;

(e) any other relevant circumstances.

82-135 Payments that are not employment termination payments

The following payments you receive are not employment termination payments :

(a) a *superannuation benefit (see Divisions 301 to 307);

(b) a payment of a pension or an *annuity (whether or not the payment is a superannuation benefit); and

(c) an *unused annual leave payment (see Subdivision 83-A);

(d) an *unused long service leave payment (see Subdivision 83-B);

(e) the part of a *genuine redundancy payment or an *early retirement scheme payment worked out under section 83-170 (see Subdivision 83-C);

(f) a payment to which Subdivision 83-D (Foreign termination payments) applies;

(g) a payment that is an advance or a loan to you on terms and conditions that would apply if you and the payer were dealing at *arm’s length;

(h) a payment that is deemed to be a *dividend under paragraph 109(1)(d) of the Income Tax Assessment Act 1936 (which deals with excessive payments to shareholders, directors and *associates);

(i) a capital payment for, or in respect of, personal injury to you so far as the payment is reasonable having regard to the nature of the personal injury and its likely effect on your capacity to *derive income from personal exertion (within the meaning of the definition of income derived from personal exertion in subsection 6(1) of the Income Tax Assessment Act 1936);

(j) a capital payment for, or in respect of, a legally enforceable contract in restraint of trade by you so far as the payment is reasonable having regard to the nature and extent of the restraint;

(k) a payment:

(i) received by you, or to which you are entitled, as the result of the commutation of a pension payable from a *constitutionally protected fund; and

(ii) wholly applied in paying any superannuation contributions surcharge (as defined in section 37 of the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Act 1997);

(l) a payment:

(i) received by you, or to which you are entitled, as the result of the commutation of a pension payable by a superannuation provider (within the meaning of the Superannuation Contributions Tax (Assessment and Collection) Act 1997); and

(ii) wholly applied in paying any superannuation contributions surcharge (as defined in section 43 of that Act).

Note: For paragraph (e) - the remaining part of a genuine redundancy payment or an early retirement scheme payment (apart from the amount mentioned in the paragraph) is an employment termination payment if section 82-130 applies to that part.

82-140 Tax free component of an employment termination payment

The tax free component of an *employment termination payment is so much of the payment as consists of the following:

(a) the *invalidity segment of the payment;

(b) the *pre-July 83 segment of the payment.

82-145 Taxable component of an employment termination payment

The taxable component of an *employment termination payment is the amount of the payment less the *tax free component of the payment (see section 82-140).

82-150 What is an invalidity segment of an employment termination payment?

(1) An *employment termination payment includes an invalidity segment if:

(a) the payment was made to a person because he or she stops being *gainfully employed; and

(b) the person stopped being gainfully employed because he or she suffered from ill-health (whether physical or mental); and

(c) the gainful employment stopped before the person’s *last retirement day; and

(d) 2 legally qualified medical practitioners have certified that, because of the ill-health, it is unlikely that the person can ever be gainfully employed in capacity for which he or she is reasonably qualified because of education, experience or training.

(2) Work out the amount of the invalidity segment by applying the following formula:

Amount of employment termination payment x (Days to retirement / (Employment days + Days to retirement))

where:

days to retirement is the number of days from the day on which the person’s employment was terminated to the *last retirement day.

employment days is the number of days of employment to which the payment relates.

82-155 What is a pre-July 83 segment of an employment termination payment?

(1) An *employment termination payment includes a pre-July 83 segment if any of the employment to which the payment relates occurred before 1 July 1983.

(2) Work out the amount of the pre-July 83 segment as follows:

Step 1. Subtract the *invalidity segment (if any) from the *employment termination payment.

Step 2. Multiply the amount at step 1 by the fraction:

Number of days of employment to which the payment relates that occurered before 1 July 1983 / Total number of days of employment to which the payment relates

82-160 What is the ETP cap amount ?

The ETP cap amount for the 2007-2008 income year is $140,000. This amount is indexed annually.

Note 1: Subdivision 960-M shows how to index amounts. However, annual indexation does not necessarily increase the ETP cap amount: see section 960-285.

Note 2: The ETP cap amount may be reduced for the purpose of working out tax offsets for individual employment termination payments.

Division 83 - Other payments on termination of employment

Table of Subdivisions

Guide to Division 83

83-A Unused annual leave payments

83-B Unused long service leave payments

83-C Genuine redundancy payments and early retirement scheme payments

83-D Foreign termination payments

83-E Other payments

Guide to Division 83

83-1 What this Division is about

This Division sets out the taxation treatment for a variety of payments, other than employment termination payments, that are made in consequence of the termination of employment.

Subdivision 83-A - Unused annual leave payments

Guide to Subdivision 83-A

83-5 What this Subdivision is about

You are entitled to a tax offset for a payment that you receive in consequence of the termination of your employment that is for unused annual leave.

Table of sections

Operative provisions

83-10 Unused annual leave payment is assessable

83-15 Entitlement to tax offset

Operative provisions

83-10 Unused annual leave payment is assessable

Application - annual leave

(1) This section applies to leave ( annual leave ) of the following types (whether it is made available as an entitlement or as a privilege):

(a) leave ordinarily known as annual leave, including recreational leave and annual holidays;

(b) any other leave made available in circumstances similar to those in which the leave mentioned in paragraph (a) is ordinarily made available.

Unused annual leave payments

(2) Your assessable income includes an *unused annual leave payment that you receive.

(3) A payment that you receive in consequence of the termination of your employment is an unused annual leave payment if:

(a) it is for annual leave you have not used; or

(b) it is a bonus or other additional payment for annual leave you have not used; or

(c) it is for annual leave, or is a bonus or other additional payment for annual leave, to which you were not entitled just before the employment termination, but that would have been made available to you at a later time if it were not for the employment termination.

83-15 Entitlement to tax offset

You are entitled to a *tax offset to ensure that the rate of tax on an *unused annual leave payment does not exceed 30%, to the extent that:

(a) the payment was made in connection with a payment that includes, or consists of, any of the following:

(i) a *genuine redundancy payment;

(ii) an *early retirement scheme payment;

(iii) the *invalidity segment of an *employment termination payment or *superannuation benefit; or

(b) the payment was made in respect of employment before 18 August 1993.

Subdivision 83-B - Unused long service leave payments

Guide to Subdivision 83-B

83-65 What this Subdivision is about

You are entitled to a tax offset for a payment that you receive in consequence of the termination of your employment that is for unused long service leave.

Table of sections

General

83-70 Application - long service leave

83-75 Meaning of unused long service leave payment

83-80 Taxation of unused long service leave payments

83-85 Entitlement to tax offset

83-90 Meaning of pre-16/8/78 period , pre-18/8/93 period , post-17/8/93 period and long service leave employment period

Employment wholly full-time or wholly part-time

83-95 How to work out amount of payment attributable to each period

83-100 How to work out unused days of long service leave for each period

83-105 How to work out long service leave accrued in each period

Employment partly full-time and partly part-time

83-110 Leave accrued in pre-16/8/78, pre-18/8/93 and post-17/8/93 periods - employment full-time and part-time

Long service leave taken at less than full pay

83-115 Working out used days of long service leave if leave taken at less than full pay

General

83-70 Application - long service leave

This Subdivision applies to leave ( long service leave ) of the following types (whether it is made available as an entitlement or as a privilege), other than annual leave to which section 83-10 applies:

(a) leave ordinarily known as long service leave, including long leave, furlough and extended leave;

(b) any other leave made available in circumstances similar to those in which the leave mentioned in paragraph (a) is ordinarily made available;

(c) if your employer has entered into a *scheme or *arrangement for leave and, because of the existence and nature of the scheme or arrangement, the employer does not have to comply with the requirements of a law of the Commonwealth, or of a State or Territory, relating to leave mentioned in paragraph (a) or (b) - leave made available under the scheme or arrangement.

83-75 Meaning of unused long service leave payment

A payment that you receive in consequence of the termination of your employment is an unused long service leave payment if:

(a) it is for long service leave you have not used; or

(b) it is for long service leave to which you were not entitled just before the employment termination, but that would have been made available to you at a later time if it were not for the employment termination.

83-80 Taxation of unused long service leave payments

Assessable and tax-free parts of unused long service leave payments

(1) If you receive an *unused long service leave payment, your assessable income includes the part of the payment shown in this table:

(2) The remainder of that part (if any) of an *unused long service leave payment that is attributable to the *pre-16/8/78 period is not assessable income and is not *exempt income.

Note 1: If your employment was wholly full-time or wholly part-time during a period, see sections 83-95, 83-100 and 83-105 to work out the amount of an unused long service leave payment that is attributable to the period.

Note 2: If your employment was partly full-time and partly part-time during a period, see section 83-110 to work out the amount of an unused long service leave payment that is attributable to the period.

83-85 Entitlement to tax offset

(1) You are entitled to a *tax offset on an *unused long service leave payment that ensures that the rate of income tax on the amount of the payment mentioned in subsection (2) does not exceed 30%.

(2) The amount is the part of the *unused long service leave payment included in your assessable income under subsection 83-80(1):

(a) to the extent that it is attributable to the *pre-18/8/93 period; and

(b) to the extent that it is attributable to the *post-17/8/93 period, if the payment was made in connection with a payment that includes, or consists of, any of the following:

(i) a *genuine redundancy payment; or

(ii) an *early retirement scheme payment; or

(iii) an *invalidity segment of an *employment termination payment or a *superannuation benefit.

83-90 Meaning of pre-16/8/78 period , pre-18/8/93 period , post-17/8/93 period and long service leave employment period

(1) The pre-16/8/78 period consists of each day (if any) in your *long service leave employment period that occurred before 16 August 1978.

(2) The pre-18/8/93 period consists of each day (if any) in your *long service leave employment period to which the payment relates that occurred after 15 August 1978 and before 18 August 1993.

(3) The post-17/8/93 period consists of each day (if any) in your *long service leave employment period to which the payment relates that occurred after 17 August 1993.

(4) Your long service leave employment period , for a period of long service leave, is:

(a) the period of employment to which the long service leave relates; or

(b) if your entitlement to long service leave changes so that it accrues over a shorter period - the period that would apply under paragraph (a) assuming the change had not happened.

Employment wholly full-time or wholly part-time

83-95 How to work out amount of payment attributable to each period

(1) Work out how much of an *unused long service leave payment is attributable to a period as follows:

(a) for the *pre-18/8/93 period or to the *post-17/8/93 period - use the formula in subsection (2);

(b) for the *pre-16/8/78 period - subtract the sum of the amounts (if any) worked out for paragraph (a) for the other 2 periods from the total amount of the payment.

(2) For the *pre-18/8/93 period or the *post-17/8/93 period, the formula is:

Amount of payment x (Unused long service leave days in the relevant period / Total unused long service leave days)

where:

total unused long service leave days means the total number of unused days of long service leave in the *long service leave employment period for the payment.

unused long service leave days in the relevant period means the number of unused days of long service leave in the *pre-18/8/93 period or the *post-17/8/93 period (as applicable), worked out under section 83-100.

Note 1: For the meaning of unused days of long service leave , see section 83-100.

Note 2: Section 83-110 explains how to work out the period of unused long service leave if your employment was partly full-time and partly part-time during the period.

83-100 How to work out unused days of long service leave for each period

(1) The number of unused days of long service leave for each of the *pre-16/8/78 period, the *pre-18/8/93 period and the *post-17/8/93 period is the number of days of long service leave that accrued to you during that period less the number of days of long service leave that you used in the period.

Exception if days used exceed days accrued in the pre-18/8/93 period and the post-17/8/93 period

(2) To the extent that the number of days of long service leave that you used during the *pre-18/8/93 period or the *post-17/8/93 period exceeds the number of days of long service leave that accrued to you during the period, apply the excess days as shown in this table:

(3) The number of unused days of long service leave in each period is the number of days after applying the table.

Note: Section 83-115 explains how to work out the number of days of long service leave you are taken to have used if you took long service leave at less than the full pay rate.

83-105 How to work out long service leave accrued in each period

(1) Work out the number of days of long service leave that accrued to you during each part of your *long service leave employment period as follows:

(a) for the *pre-18/8/93 period or the *post-17/8/93 period - use the formula in subsection (2);

(b) for the *pre-16/8/78 period - subtract the sum of the number of days (if any) worked out under paragraph (a) for the other 2 periods from the total number of days of long service leave accrued to you during the long service leave employment period.

(2) For the *pre-18/8/93 period or the *post-17/8/93 period, the formula is:

Days of long service leave accrued during long service leave employment period x (Days in relevvant period / Days in long service leave employment period)

where:

relevant period means the *pre-18/8/93 period or the *post 17/8/93 period (as applicable).

How to treat fraction of day

(3) If long service leave accrued to you during the *pre-18/8/93 period and the *post-17/8/93 period but not during the *pre-16/8/78 period, and the number of days worked out under subsection (2) for the post-17/8/93 period includes a fraction, treat the fraction as having accrued during the pre-18/8/93 period.

(4) If long service leave accrued to you during all 3 periods and the number of days worked out under subsection (2) for the *post-17/8/93 period or the *pre-18/8/93 period includes a fraction, treat the fraction as having accrued during the *pre-16/8/78 period.

Employment partly full-time and partly part-time

83-110 Leave accrued in pre-16/8/78, pre-18/8/93 and post-17/8/93 periods - employment full-time and part-time

(1) This section applies if the *long service leave employment period for an *unused long service leave payment includes:

(a) 1 or more periods when you were employed on a full-time basis; and

(b) 1 or more periods when you were employed on a part-time basis.

(2) Work out how much of the payment is attributable to the period or periods when you were employed on a full-time basis (the full-time payment ) and how much to the period or periods when you were employed on a part-time basis (the part-time payment ).

(3) The amount of the payment that is attributable to each of the *pre-16/8/78 period, the *pre-18/8/93 period and the *post-17/8/93 period is the sum of the amounts worked out in accordance with sections 83-95, 83-100 and 83-105 that would be attributable to those periods if the full-time payment and the part-time payment were each *unused long service leave payments.

Long service leave taken at less than full pay

83-115 Working out used days of long service leave if leave taken at less than full pay

If you used days of long service leave at a rate of pay that is less than the rate to which you are entitled, the number of days of long service leave you are taken to have used (disregarding fractions of days) is as follows:

Actual days of long service leave x (Rate of pay at which leave was actually taken / Rate of pay to which you were entitled when taking leave)

Example: If you took 100 actual days of long service leave at a rate of pay of $30 per hour, while the rate of pay to which you were entitled when taking leave is $40 per hour, you are taken to have used 75 days of long service leave, worked out as follows:

100 actual days of long service leave x (30 / 40) = 75 days of long service leave you are taken to have used

Subdivision 83-C - Genuine redundancy payments and early retirement scheme payments

Guide to Subdivision 83-C

83-165 What this Subdivision is about

This Subdivision defines what are genuine redundancy payments and early retirement scheme payments.

If you receive a genuine redundancy payment or an early retirement scheme payment, you do not have to pay income tax on the payment so far as it does not exceed a certain amount worked out under this Subdivision.

A part of a genuine redundancy payment or an early retirement scheme payment that is not tax free under this Subdivision will normally be an employment termination payment.

Table of sections

Operative provisions

83-170 Tax-free treatment of genuine redundancy payments and early retirement scheme payments

83-175 What is a genuine redundancy payment ?

83-180 What is an early retirement scheme payment ?

Operative provisions

83-170 Tax-free treatment of genuine redundancy payments and early retirement scheme payments

(1) This section applies if you receive a *genuine redundancy payment or an *early retirement scheme payment.

Note: A payment cannot be both a genuine redundancy payment and an early retirement scheme payment, because of the nature of each of these types of payment: see sections 83-175 and 83-180.

(2) So much of the relevant payment as does not exceed the amount worked out under subsection (3) is not assessable income and is not *exempt income.

(3) Work out the amount using the formula:

Base amount + (Service amount x Years of service)

where:

base amount means:

(a) for the income year 2006-2007 - $6,783; and

(b) for a later income year - the amount mentioned in paragraph (a) indexed annually.

Note: Subdivision 960-M shows you how to index the base amount.

service amount means:

(a) for the income year 2006-2007 - $3,392; and

(b) for a later income year - the amount mentioned in paragraph (a) indexed annually.

Note: Subdivision 960-M shows you how to index the service amount.

years of service means the number of whole years in the period, or sum of periods, of employment to which the payment relates.

Note: The remaining part of a genuine redundancy payment or an early retirement scheme payment (apart from the amount mentioned in subsection (3)) is an employment termination payment if section 82-130 applies to that part.

83-175 What is a genuine redundancy payment ?

(1) A genuine redundancy payment is so much of a payment received by an employee who is dismissed from employment because the employee’s position is genuinely redundant as exceeds the amount that could reasonably be expected to be received by the employee in consequence of the voluntary termination of his or her employment at the time of the dismissal.

(2) A genuine redundancy payment must satisfy the following conditions:

(a) the employee is dismissed before the earlier of the following:

(i) the day he or she turned 65;

(ii) if the employee’s employment would have terminated when he or she reached a particular age or completed a particular period of service - the day he or she would reach the age or complete the period of service (as the case may be);

(b) if the dismissal was not at *arm’s length - the payment does not exceed the amount that could reasonably be expected to be made if the dismissal were at arm’s length;

(c) at the time of the dismissal, there was no *arrangement between the employee and the employer, or between the employer and another person, to employ the employee after the dismissal.

(3) However, a genuine redundancy payment does not include any part of a payment that was received by the employee in lieu of *superannuation benefits to which the employee may have become entitled at the time the payment was received or at a later time.

Payments not covered

(4) A payment is not a genuine redundancy payment if it is a payment mentioned in section 82-135 (apart from paragraph 82-135(e)).

Note: Paragraph 82-135(e) provides that the part of a genuine redundancy payment or an early retirement scheme payment worked out under section 83-170 is not an employment termination payment.

83-180 What is an early retirement scheme payment ?

(1) An early retirement scheme payment is so much of a payment received by an employee because the employee retires under an *early retirement scheme as exceeds the amount that could reasonably be expected to be received by the employee in consequence of the voluntary termination of his or her employment at the time of the retirement.

(2) An early retirement scheme payment must satisfy the following conditions:

(a) the employee retires before the earlier of the following:

(i) the day he or she turned 65;

(ii) if the employee’s employment would have terminated when he or she reached a particular age or completed a particular period of service - the day he or she would reach the age or complete the period of service (as the case may be);

(b) if the retirement is not at *arm’s length - the payment does not exceed the amount that could reasonably be expected to be made if the retirement were at arm’s length;

(c) at the time of the retirement, there was no *arrangement between the employee and the employer, or between the employer and another person, to employ the employee after the retirement.

(3) A scheme is an early retirement scheme if:

(a) all the employer’s employees who comprise such a class of employees as the Commissioner approves may participate in the scheme; and

(b) the employer’s purpose in implementing the scheme is to rationalise or re-organise the employer’s operations by making any change to the employer’s operations, or the nature of the work force, that the Commissioner approves; and

(c) before the scheme is implemented, the Commissioner, by written instrument, approves the scheme as an early retirement scheme for the purposes of this section.

(4) A scheme is also an early retirement scheme if:

(a) paragraph (3)(a) or (b) does not apply; and

(b) the Commissioner is satisfied that special circumstances exist in relation to the scheme that make it reasonable to approve the scheme; and

(c) before the scheme is implemented, the Commissioner, by written instrument, approves the scheme as an early retirement scheme for the purposes of this section.

(5) However, an early retirement scheme payment does not include any part of the *employment termination payment that was paid to the employee in lieu of *superannuation benefits to which the employee may have become entitled at the time the employment termination payment was made or at a later time.

Payments not covered

(6) A payment is not an early retirement scheme payment if it is a payment mentioned in section 82-135 (apart from paragraph 82-135(e)).

Note: Paragraph 82-135(e) provides that the part of a genuine redundancy payment or an early retirement scheme payment worked out under section 83-170 is not an employment termination payment.

Subdivision 83-D - Foreign termination payments

Guide to Subdivision 83-D

83-230 What this Subdivision is about

This Subdivision deals with termination payments that arise out of foreign employment.

These payments are not employment termination payments, and are tax free (except for amounts worked out under this Subdivision).

Table of sections

Operative provisions

83-235 Termination payments tax free - foreign resident period

83-240 Termination payments tax free - Australian resident period

Operative provisions

83-235 Termination payments tax free - foreign resident period

A payment received by you is not assessable income and is not *exempt income if:

(a) it was received in consequence of the termination of your employment in a foreign country; and

(b) it is not a *superannuation benefit; and

(c) it is not a payment of a pension or an *annuity (whether or not the payment is a superannuation benefit); and

(d) it relates only to a period of employment when you were not an Australian resident.

83-240 Termination payments tax free - Australian resident period

(1) A payment received by you is not assessable income and is not *exempt income if:

(a) it was received in consequence of:

(i) the termination of your employment in a foreign country; or

(ii) the termination of your engagement on qualifying service on an approved project (within the meaning of section 23AF of the Income Tax Assessment Act 1936), in relation to a foreign country; and

(b) it relates only to the period of that employment or engagement; and

(c) it is not a *superannuation benefit; and

(d) it is not a payment of a pension or an *annuity (whether or not the payment is a superannuation benefit); and

(e) you were an Australian resident during the period of the employment or engagement; and

(f) the payment is not exempt from income tax under the law of the foreign country; and

(g) for a period of employment - your foreign earnings from the employment are exempt from income tax under section 23AG of the Income Tax Assessment Act 1936; and

(h) for a period of engagement - your *eligible foreign remuneration from the service is exempt from income tax under section 23AF of that Act.

(2) For the purposes of subparagraph (1)(a)(ii), treat the termination of engagement on qualifying service on an approved project as including:

(a) retirement from the engagement; and

(b) cessation of the engagement because of the person’s death.

Note: The termination of a person’s employment is treated in the same way: see section 80-10.

Subdivision 83-E - Other payments

Guide to Subdivision 83-E

83-290 What this Subdivision is about

If a payment you receive in consequence of the termination of your employment is made more than 12 months after the termination of your employment, it does not qualify as an employment termination payment, subject to certain exceptions (see section 82-130).

The payment is treated as assessable income and no tax concession is allowed under Division 82.

Table of sections

Operative provisions

83-295 Termination payments made more than 12 months after termination etc.

Operative provisions

83-295 Termination payments made more than 12 months after termination etc.

A payment received by you that would be an *employment termination payment but for paragraph 82-130(1)(b) is assessable income.