Eligible Service Period
Termination payment in consequence of termination of employment
Eligible termination payment from superannuation fund or approved deposit fund
Eligible service period for 'rolled over' payments
Eligible Service Period
Termination payment in consequence of termination of employment
Eligible termination payment from superannuation fund or approved deposit fund
Eligible service period for 'rolled over' payments
and...
how much
relates to the period after 30 June 1983 , when the law was changed, and so is included in full in assessable income..If you refer to the definition of 'eligible service period' in sec 27A, you will see that it can be one of 4 things. Each of these 4 things relates back to the definition of eligible termination payment. You can get a simplified explanation or each of those 4 things in paragraph 11-090 of the CCH Master Tax Guide. If you have access to the 1936 Income Tax Assessment Act it may be worth your while to look up the definition in section 27A. You will appreciate what a great achievement the Tax Law Simplification Project represents, and will pray fervently for the day that it sorts out this area of the tax law.
(a) termination payment is in consequence of
termination of employment (the golden handshake)
para (a) of the definition of eligible termination payment in of section 27A(1) states that where
any payment is made, in respect of the taxpayer,
in consequence of any employment of the taxpayer, or another person,
the eligible service period is
period of employment
to which eligible termination payment relates
Eligible service period where
(b) eligible termination payment from
employer sponsored superannuation fund
para (b) of the definition of eligible termination payment in of section 27A(1) states that where any payment is made, in respect of the taxpayer,
in consequence of membership of a fund
the eligible service period is
sum of the relevant service periods (employment & fund membership periods)
we will look at the definition of 'relevant service period' shortly.
(if member of non employer sponsored superannuation fund eg self employed taxpayer
eligible service period sum= period of fund membership)
(c) eligible termination payment from approved deposit fund (for 'rolled over' eligible termination payments)
period during which taxpayer was a depositor
What happens to the eligible service period
when you
roll over an eligible termination payment?In cases where eligible termination payments have been
rolled over into acceptable funds,(such as superannuation funds, approved deposit funds or retirement savings accounts)
the eligible service periods that attached to those payments that were rolled over are aggregated. In other words you get to keep the eligible service period for each termination payment even when it is rolled over.
(d) superannuation pension is commuted or converted to residual capital value
Say a taxpayer has received an eligible termination payment and has used it to purchase an annuity or pension, rather than keeping the lump sum.
If after receiving annuity income for a period the taxpayer decides he no longer wishes to receive the pension or annuity, but wants to 'sell' that annuity for a sum of money, we say he has
commuted the pension.Another way of saying this is that he has converted the annuity to its
residual capital value.period during which taxpayer was an employee plus period entitled to pension
Para (d) requires us to go right back to the start of the
first service period which gave rise to the eligible termination payment
which was used to purchase the annuity which has been commuted...
How about that for a mouthful?
it is the period from then to the date of commutation.
We have used the expression 'relevant service period' but what does it mean?
We will look at its definition, but remember it refers only to payments from a superannuation or approved deposit fund.
Once again the definition applies in 4 different circumstances
(a)member of employer sponsored superannuation fund during employment
relevant service period=period employed
(b)member of superannuation fund (not sponsored by employer)
relevant service period=period a member
(c)eligible termination payment 'rolled over' (or deposited within 90 days of receipt) with approved deposit fund.
Relevant service period=period deposited
(d)if an eligible termination payment is attributable to the roll over of an earlier eligible termination payment, the eligible service period for that earlier payment becomes the relevant service period for the later payment
para 11-090 - CCH Master Tax Guide contains further details
Question: Period of employment = 10 years
golden handshake from employer=$9000
what is the eligible service period?
If you said 10 you are right!
eligible service period=period employed
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