When you return income for an eligible termination payment, you will use the 'Statement of Termination Payment' form provided by the payer. This form will provide you with a break up of all the various components, which you will then enter, into the form that Taxboss will display on the screen.

 Taxboss will do all the calculations on the figures that you enter. It will work out the amount that should be entered into the return form at the eligible termination payment item of the return form (and the additional income if there is any excessive component) and then enter that amount for you.

 Transcribing these details from the form supplied by the payer to the return (or Taxboss dialog box) can be a rather nerve racking experience if you are not sure what it is you are doing, so it might be useful to have a working knowledge of what each component represents.

 Section 27B and 27C include various components of ELIGIBLE TERMINATION PAYMENTS in assessable income.

But what are ELIGIBLE TERMINATION PAYMENTS?

Be prepared for information overload if you want to look up the definition in the Income Tax Assessment Act. It covers four pages and is a bit like one of those television commercials that offer not just the product they are advertising, but also sets of steak knives, all sorts of gadgets and even the kitchen sink.

Section 27B lays down the rules for the inclusion of payments received on retirement, in full, in assessable income.

(1) If an ETP (other than a death benefit ETP) is made in relation to a taxpayer in a year of income, the taxpayer's assessable income of the year of income includes:

 (a) the taxed element of the retained amount of the post-June 83 component; and

 (b) the untaxed element of the retained amount of the post-June 83 component.

 (… 1A deals with death benefits in much the same way

So Section 27B(1) requires the taxpayer to include in assessable income ...

Sec 27 AA tells us that an Eligible Termination Payment consists of one or more of the following components:

 Let's look at each of those in a bit more detail…

These are the amounts you have paid for your superannuation, and for which you have received no tax deduction or rebate.

The definition is found in in section 27 A(1) - the definitions section - as so much of the eligible termination payment as is attributable to contributions, made by the taxpayer (or any other person) AFTER 30/6/83 to a superannuation fund for superannuation benefits, in respect of which no tax deduction is allowable or has been allowed to the taxpayer (or other person).

Section 27 A (7)(b) removes the employer from the class of other persons who can make 'undeducted contributions'

Most employers make a contribution to their employees superannuation. If they somehow managed not to qualify for a tax deduction for such payments such amounts CAN NOT be added to your undeducted contributions.

What about rebates allowed for superannuation contributions?

Can an amount be included in undeducted contributions if it has been allowed as a rebate against tax payable? (HINT Refer para 11-070 of CCH Master Tax Guide.)

The answer is YES. The Assessment Act does not exclude amounts from undeducted contributions just because they qualified as REBATES

(we are not going to worry too much about this one - it is an anti tax avoidance measure to combat certain schemes - unless you received a commutation or residual capital value payment in respect of an annuity which was purchased otherwise than by roll over - it is not going to affect you. Refer para 11-075 of the CCH Master Tax Guide if you are interested)

This one can probably be described most succinctly by quoting from the editorial of the Financial Review newspaper of February 14, 1996.

Subsequent to its election, the new Government made good on it's undertakings whilst in opposition. You can read about these measures and their precise implementation in the CCH Master Tax Guide.

Paragraph 12-280 provides details of the arrangements for rolling of the gain on active assets of a business when they are replaced with other active (business) assets.

But paragraph 11-032 is the one of most immediate interest to us and should be referred to for full details. In briefest outline, the legislation allows a taxpayer to treat a capital gain as an eligible termination payment if:

The Assessment Act provides some hefty deductions for contributions to superannuation funds. Where such deductions are available, you can be sure that attempts will be made to exploit them for their tax advantages rather than for their intended purpose of encouraging people to make a serious attempt to provide for their own security in the twilight of their lives. The superannuation provisions have been the targets of some truly exotic schemes.

When the government of the day moved to change the law to include 100% of such payments in assessable income, it was decided to make the new arrangements apply prospectively. In other words, any part of the payment that could be attributed to employment before the law changed would continue to be included under the old way of doing things.

So only 5% of any eligible termination payment attributable to service before 1 July 1983 would be included in assessable income.

This is just what is left of the Eligible Termination Payment after deducting all the other components.

The rebate, which effectively provides a concessional rate of tax on the post June 83 components of eligible termination payment, works in a similar way to the imputation credit, allowed on dividend income.

You may be aware that if you receive dividend income, you are allowed a rebate which represents the tax paid by the company on the income it would otherwise have used to fund a bigger dividend for you, the shareholder, had it not been required to pay the company tax.

In a similar way, super funds are required to pay tax of 15% on their income, so that tax can be claimed back by the pensioner in his tax return as a rebate.

If the taxpayer receives the pay out in the form of an eligible termination payment rather than as a pension, a rebate will be allowed on the same principle.

The legislation, which provides for this rebate was announced by a Prime Minister who had won an election not had expected him to win. He had done this by offering generous tax rate cuts, which came to be known as the 'L-A-W law' tax cuts. He devised a way to renege on the 'LAW law' tax cuts and make the budget look better at the same time. He did this by getting revenue from the superannuation funds in the short term rather than waiting for what he could collect when people retired and started paying income tax on pension or lump sum payments. Hence the rebate on pensions, and eligible termination payments, when they funds start paying out of taxed funds.

(Details are provided in paragraph 11-118 of the CCHN Master Tax Guide)

(Threshold for 1998 income year was $90,474 but this changes each year)