Transitional Termination Payments (“TTPs”)

Applicable until 30 June 2012, certain termination payments made between 1 July 2007 and 30 June 2012 were subject to special rules if, as at 9 May 2006 the payment was made under a law, a written contract, or a workplace agreement under the Workplace Relations Act of 1996.

Up to 30 June 2012, the tax on TTPs could be deferred by rolling over (all or part) into a super fund, or used to buy an annuity.

Tax Treatment of Transitional Termination Payments

Any invalidity or pre-1 July 1983 components of a TTP are tax free. The tax on the remaining taxable components is dependent upon the age of the recipient and subject to capped values. The following table is a summary, applicable for the 2011-12 year:

Taxation of Transitional Termination Payments Taken in Cash* 2011-12
 Age at 30 June Thresholds* – Tax on Taxable Component
Under preservation ageUp to $1 million: Tax limited to 30% + Medicare
Over $1 million: 45% plus Medicare
At preservation age or aboveUp to $165,000: Tax limited to 15% plus Medicare
From $165,000 to $1 million: Tax limited to  30% + Medicare
Over $1 million: 45% plus Medicare

 

* TTP thresholds apply to all taxable components received during the transitional period, not just the current year of income.

Rollover of TTPs

Until 30 June 2012, instead of receiving the TTP in cash, an employee could, by providing written direction to the employer, roll over all or part of the TTP payment into a complying  super fund, retirement savings account, approved deposit fund or annuity.

The result of a rollover is that tax is not paid by the employee on the taxable rolled-over components, but the receiving fund is subject to a 15% contributions tax, subject to caps. Amounts over the (concessional and non-concessional) caps attract higher tax.

.

This page was last modified on 25 Sept 2017