Changes to the taxation of termination payments and Superannuation

Arising from the 2012-2013 Federal Budget are various changes that will have practical impacts on businesses and business owners in relation to the taxation rates to be applied to lump sum payments to employees upon termination of their employment (ETPs), and concessional contributions to superannuation funds.

Eligible Termination Payments:

Currently, employment termination payments may be taxed concessionally (15% or 30%, determined by the age of the recipient) up to $165,000.  This concessional taxation applies regardless of the level of recipient’s other income. The new rules will now take into account the recipient’s taxable income and will give access to concessional tax rates for only as much of an ETP that brings the taxable income up to $180,000.  In other words, if the employee already has other taxable income of $180,000, there will be no concessional tax treatment for the ETP. Amounts above this whole-of-income cap will be taxed 45%.

Concessional Superannuation Contributions:

The Government has deferred its previous proposal to increase the concessional contribution limit for persons over 55 with superannuation balances of less than $500,000.  This will mean that, from 1 July 2012, the standard $25,000 concessional contribution limit will apply to all taxpayers.

The budget also introduces a change to the concessional taxation treatment of contributions to superannuation funds. Under the current rules, concessional tax contributions are taxed at the rate of 15%,and this will now be doubled  from 15% to 30% for taxpayers with taxable incomes of more than $300,000.

Contact Annette at End2End Business Solutions on (02) 8977 4002 should you require any assistance or to simply obtain further information .