Two methods are used to calculate a member's adjusted taxable income:
- First case method
- Second case method
Follow these steps to choose the correct method to calculate a member's adjusted taxable income:
Did the member receive an eligible termination payment from their employer?
- No – use the first case method
- Yes – was the total of the reduced amounts of the eligible termination payments equal to or greater than the higher income amount in Table 1?
- Yes – use the first case method
- No – use the second case method
Reduced amount of an eligible termination payment
The reduced amount of an eligible termination payment is the amount remaining after you deduct any:
- post-June 1994 invalidity component
- capital gains tax (CGT) exempt component
- part of the payment made from an employee share acquisition scheme.
First case method
With the first case method, adjusted taxable income is calculated as being a member's taxable income:
- minus super fund and rollover fund eligible termination payments
- minus lump sum payments for unused long service leave (for post- 15 August 1978 service) and unused annual leave received when they ceased employment because of bona fide redundancy, invalidity or under an approved early retirement scheme
- plus family trust distributions exempt from income tax because the trust paid the tax
- plus distributions exempt from income tax because ultimate beneficiary non-disclosure tax was paid
- plus their total surchargeable contributions
- plus reportable fringe benefit amount shown on their payment summary (for income years ended 30 June 2000 onwards).
Example: First case method
Jamal works as an environmental engineer. His taxable income for the 2001–02 financial year was $72,000. His employer paid super contributions of $6,500 into his self-managed super fund. Jamal's employer also provides him with a company car; this has a reportable fringe benefit of $8,000.
Item |
Amount |
|---|---|
Taxable income |
$72,000 |
Less: Super fund eligible termination payments |
$0 |
Less: Applicable unused annual and long service leave payments |
$0 |
Plus: Family trust distribution amounts |
$0 |
Plus: Ultimate beneficiary non-disclosure tax |
$0 |
Plus: Surchargeable contributions |
$6,500 |
Plus: Reportable fringe benefit amount |
$8,000 |
Adjusted taxable income |
$86,500 |
As Jamal's adjusted taxable income is greater than the lower income amount of $85,242 for the 2001–02 financial year, he has a super surcharge liability.
End of exampleSecond case method
With the second case method, adjusted taxable income is calculated as being a member's taxable income:
- plus family trust distributions exempt from income tax because the trust paid the tax
- plus distributions exempt from income tax because ultimate beneficiary non-disclosure tax was paid
- plus their total surchargeable contributions (excluding any post 20 August 1996 portion of an eligible termination payment that was rolled over)
- plus any reportable fringe benefit amount shown on their payment summary (for income years ended 30 June 2000 onwards)
- plus the amount we arrive at by doing the eligible termination payment calculation (see the formula to calculate this below)
- minus the assessable amount of all eligible termination payments
- minus lump sum payments for unused long service leave (for post-15 August 1978 service) and unused annual leave received when they ceased employment because of bona fide redundancy, invalidity or under an approved early retirement scheme.
The eligible termination payment amount
Use this formula to work out a member's eligible termination payment amount:
- Taxable portion of each eligible termination payment × number of
service days after 20 August 1996 (see note 1) ÷ total number of eligible service days
Note 1: If the number of service days after 20 August 1996 is greater than 365 days, 365 days is used instead.
Calculating this figure ensures a maximum of one year's accrual of eligible termination payments is included when we work out adjusted taxable income.
Example: Second case method
Mary began work on 1 May 1991. She stopped work on 24 August 2003 and was paid an employer eligible termination payment of $58,000, which she rolled over.
For the 2003–04 financial year Mary has:
- a taxable income of $86,000
- surchargeable contributions of $41,000 (of which $33,010 represents the post-20 August 1996 portion of the rolled-over eligible termination payment and $7,990 employer contributions)
- 4,498 total service days (consisting of 2,560 post-20 August 1996 days).
As the gross or reduced amount of the eligible termination payment ($58,000) Mary received in the 2003–04 financial year is less than the higher income amount of $114,981, only a portion of the eligible termination payment is included in her adjusted taxable income calculation.
Item |
Amount |
|---|---|
Taxable income |
$86,000 |
Plus: Income tax exempt, family trust distribution tax paid |
$0 |
Plus: Income tax exempt, ultimate beneficiary non-disclosure tax paid |
$0 |
Plus: Surchargeable contributions excluding post-20 August 1996 ETP rollover amount ($41,000 − $33,010) |
$7,990 |
Plus: Reportable fringe benefits amount |
$0 |
Plus: Eligible termination payment calculation 1 (see below) |
$4,706 |
Less: Assessable amount of all eligible termination payments |
$0 |
Less: Lump sum payments for unused long service leave |
$0 |
Adjusted taxable income |
$98,696 |
As Mary's adjusted taxable income is greater than the lower income amount of $94,691 for the 2003–04 financial year, she has a super surcharge liability.
Mary's eligible termination payment calculation is:
$58,000 × 365 ÷ 4,498 = $4,706
End of example