22 May 2001

Reduction In Surcharge On Certain Termination Payments

The Government will make three amendments to improve the operation of the termination payments surcharge and the superannuation contributions surcharge as they apply to employer eligible termination payments, such as redundancies.

The first amendment is to the existing transitional arrangements. Currently, as a transitional measure until 19 August 2001, taxpayers are liable for the termination payments surcharge only on the portion of the termination payment that accrued after the surcharge was announced on 20 August 1996. The amendment will remove the sunset provisions and continue to apply both the termination payments surcharge and the superannuation contributions surcharge only to the portion of the payment that accrued after 20 August 1996, when the surcharges commenced. Further, termination payments rolled over into a superannuation fund between 20 August 1996 and 1 July 1997 will be liable to the superannuation contributions surcharge only in relation to the part of the payment that accrued after 20 August 1996, when the surcharge was announced (payments rolled over before 1 July 1997 were not divided into pre and post 20 August 1996 components).

The second amendment will change how a taxpayer's adjusted taxable income is determined under the surcharge legislation. Under the new arrangements, only the amount of the termination payment divided by the taxpayer's years of service will be included in adjusted taxable income. It will mean that taxpayers who receive moderate termination payments and who otherwise do not have high incomes will have a reduced or no surcharge liability. This will apply only for termination payments less than the upper surcharge threshold ($98,955 in 2000-01, indexed to Average Weekly Ordinary Time Earnings). For termination payments equal to or greater than the upper surcharge threshold, the entire payment will continue to be included in the taxpayer's adjusted taxable income. This amendment will apply to payments made since 20 August 1996.

The third amendment will exempt the excessive component of an employer eligible termination payment from liability to the termination payments surcharge, while retaining its liability to the Medicare Levy and tax at 47% as the excessive component of taxable income. This amendment will apply to payments received after 7:30pm Australian Eastern Standard Time on 22 May 2001.

The Australian Taxation Office will be making a separate announcement about how it will administer the retrospective aspects of these amendments.

CANBERRA

22 May