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Tax

Chapter5

TermDefinition
Various lump sum payments may be received by employees when they terminate their employment through: resignation,retirement,dismissal,redundancy, or invalidity
Lump sum payments may be received in relation to: Superannuation,Employment Termination Payments (ETP’s), Unused Leave,Redundancy/Early Retirement
A superannuation benefit can be paid as either a: Lump sum benefit or Income stream benefit
All superannuation benefits may have two components: Tax-free component or Taxable component
The taxation of superannuation benefits depends upon: age of the recipient,lump sum or income stream benefit,tax-free or taxable component,whether the taxable component includes an “element taxed in the fund” or “element untaxed in the fund”
Preservation age restriction that prevents a member from accessing superannuation benefits until satisfying a condition of release. it depends upon a person’s date of birth,
Conditions of Release.Preserved superannuation entitlements are preserved until the taxpayer: prmnntlyRtird frGainfulEmploymntHavingReachd preservation age,leaves work after age 60,reaches 65,becomes permanently incapacitated,dies,release on compassionate grounds (e.g. illness, financial hardship)/ particular fund’s governing rules.
Taxed superannuation funds,Most superFunds are taxed funds Amount received fr.Taxed superFundCalled an element taxed in the fund. is taxed at 15% on employer&salary sacrificed cntrbtnsInIncomeYr that the contributionReceived. Personal after-tax contributions and those received under gov's co-contribution scheme are not taxed.Income earned in fund (investment earnings)also taxed,15%
Taxed source benefits i.e. “element taxed in the fund”. Aged 60 years and over: If the recipient is aged 60 and over both superannuation lump sums and income stream benefits are not assessable income.
Taxed source benefits:Preservation Age to 59 years: If the recipient is aged 55 to 59 and over both superannuation lump sums and income stream benefits are assessable income. Concessional tax treatment applies.
Taxed source benefits:Below Preservation Age: If the recipient is aged less than 55 both superannuation lump sums and income stream benefits are assessable income, and are taxed at marginal tax rates.
Untaxed superannuation funds.An amount received from an untaxed superannuation fund is called an element untaxed in the fund. It meansCwealthGov doesn't tax either the contributions an employer makes on behalf of employee/investment earnings, until taxpayer leaves the superScheme.Amounts in untaxed superFunds only taxed when benefit is paid, not while the money accumulatingInA/c
Untaxed source benefits i.e. “element untaxed in the fund”.A tax free component is exempt from tax. The tax treatment of a superannuation benefit paid from an untaxed source depends upon:Age ofRerecipient,whether amount is paid as a lump sum or as an income stream, and whether the benefit contains a tax free or taxable component
Untaxed source benefits:Aged 60 years and over: If the recipient is aged 60 and over both superannuation lump sums and income stream benefits are assessable income. Concessional tax treatment applies.
Untaxed source benefits:Preservation Age to 59 years: If the recipient is aged 55 to 59 and over both superannuation lump sums and income stream benefits are assessable income. Concessional tax treatment applies.
Untaxed source benefits:Below Preservation Age: If the recipient is aged less than 55 both superannuation lump sums and income stream benefits are assessable income. Concessional tax treatment applies to Lump sums.
Accessing superannuation benefits A taxpayer can access their superannuation:when they reach preservation age and retire.when they turn 65 (even if they haven’t retired).under the transition to retirement rules (if they are eligible) while continuing to work.
Early release of benefits There are alsoLtd.circumstances in which taxpayer able to access their superannuation before they retire.These circumstances are: severe financial hardship. terminal medical condition. certain compassionate grounds. permanent or temporary incapacity.
Employment Termination Payments (ETP’s) Payments for unused sick leave,“Golden handshakes”,Amounts for unused rostered days off,Invalidity payments,Amounts in lieu of notice
Life benefit ETP’s & Death benefit ETP’s, Tax free component is tax free.
Life benefit ETP’s Taxable component is assessable. - taxed at 15% maximum up if preservation age reached, or at 30% if under preservation age.Any excess over $200,000 (employment termination payment cap) taxed at highest marginal tax rate.
Death benefit ETP’s, Taxable component is assessable. - tax free up to $200,000 (employment termination payment cap). - taxed at highest marginal rate on excess over $200,000.
Since 1 July 2012, only that part of an affected ETP that takes a taxpayer’s total annual taxable income (including the ETP) to no more than $180,000 will receive the ETP tax offset.
Whole-of-income cap The $180,000 reduced by any other taxable income derived in the income year. Amounts above this whole-of-income cap will be taxed at marginal rates.
The whole-of-income cap incorporates other taxable income that the taxpayer derives in the same income year. Other taxable income is simply assessable income minus deductions.
A genuine redundancy payment is one received by an employee who is dismissed from employment because the employee’s position is genuinely redundant.
A genuine redundancy can also occur where an employee voluntarily accepts a redundancy/retirement package or is placed in a position leaving them little option but to resign.
Genuine Redundancy Payments may consist both an assessable and tax-free (exempt) amount.
Genuine Redundancy Payments.The tax-free amount for 2018/19 is calculated as follows: $10,399 plus $5,200 for each whole year of completed service with the employer concerned.
Early Retirement Scheme Payments is an incentive payment offered to employees who an employer wishes to replace.These payments are designed to encourage early retirement or resignation.
For tax purposes. Early Retirement Scheme Payments they are treated in exactly the same way as genuine redundancy payments.
Effect of Genuine Redundancy and Retirement Scheme Payments Where a taxpayer receives either a genuine redundancy payment or an early retirement scheme payment it is treated as an ETP taxable component.
any post 17 August 1993 accrued annual leave and accrued long service leave lump sum amounts are taxed at a maximum tax rate of 30% (plus Medicare Levy) instead of at the usual ordinary marginal tax rates.
Annuities All non-superannuation annuities and certain foreign source pensions are assessable.
Annuity Defined Is a fixed sum payable periodically either for a fixed period of time or for the rest of the recipient’s life.
An annuity may be: Purchased by the recipient,Granted by a living person,Granted by a will,Combination of purchase and grant
Deductible amount Where a non-superannuation annuity or certain foreign pension is purchased, the assessable amount of an annuity may be reduced.
deductible amount represents the undeducted purchase price of an annuity reduced by its residual capital value apportioned over the term of the annuity.
Undeducted Purchase Price is essentially the amount paid in purchasing the non-superannuation annuity or to obtain the foreign pension.
Residual Capital Value (RCV) is the capital amount payable on termination of the annuity. (Not all annuities have a RCV)
The formula to calculate the deductible amount is: Total undeducted purchase price - RCV / Life expectancy at beginning of annuity period
if an annuity is purchased for a fixed term of years, then the deductible amount is calculated as follows: Total undeducted purchase price - RCV / Number of years in fixed term
Rebateable annuities:Superannuation Annuities All superannuation income stream annuities, paid from taxed superannuation funds (i.e. taxed element) to taxpayers who are aged 56 years or more but less than 60 years are eligible for a tax offset.
Superannuation Annuities:The tax offset is a flat 15% of the assessable amount of an annuity.
Rebateable annuities:Superannuation Annuities:tax offset is not available for taxpayers aged less than 56 years (unless they retire due to a permanent disability).
Rebateable annuities:Non-superannuation Annuities.A tax offset is not available for non-superannuation annuities.
Created by: oliverawesome