ap_etp05

Rolling over the Eligible Termination Payment

Retiring allowance - rolling it over-sec 27D

Sec 27D is the means by which the Act encourages retiring taxpayers to use termination payments to purchase pensions for themselves rather than accepting the social security pension in retirement.

Under sec 27A(12), if a taxpayer does this immediately after the eligible termination payment is made, by 'rolling over' the eligible termination payment into a

superannuation fund

approved deposit fund

an eligible annuity from a registered organisation which sells annuities (eg an Australian policy from a life assurance company, trade union, employer organisation, friendly society, benefit socieyt)

retirement savings account

then that eligible termination payment becomes a ...

Qualifying eligible termination payment

The definition of qualifying eligible termination payment in section 27A (12) is quite rigorous, so we will set out a brief form of it here…

An eligible termination payment becomes a qualifying eligible termination payment if, immediately after the eligible termination payment is made, an amount is:

paid to a complying superannuation fund for superannuation benefits for

the taxpayer

in the event of his retirement or

in other circumstances of a kind approved by the Commissioner;

for dependants of the taxpayer

in the event of the death of the taxpayer;

(b) paid for the benefit of the taxpayer to a complying Approved Deposit Fund; or

in respect of the purchase of an annuity that:

(i) is an eligible annuity in relation to the taxpayer; and

(ii) is for the benefit of the taxpayer or the dependants of the taxpayer in the event of the death of the taxpayer. (If the annuity is purchased from a life insurance office it must be an Australian policy)

The following payments can NOT be rolled over, or to use the words of the Act, can not be 'qualifying eligible termination payments'.

death benefit

payment from a non-resident superannuation fund

non qualifying amount

a commutation of an annuity purchased by a roll over and paid after the death of the annuitant to someone other than his spouse. (legal, former or de facto)

If the taxpayer makes an election in relation to the qualifying eligible termination payment, setting out the details required in sec 27D, then it shall be taken to have been applied in accordance with sec 27D.

So it will be deducted from the 'relevant amount' included in assessable income by sec 27B - paras 11-180 to 190 - CCH Master Tax Guide contain further details

Question

What part of a qualifying eligible termination payment is included in

assessable income by sec 27D?

Nil
2. 5%
3. 100%

1,2 Or 3?

If you said 1 you are correct!