Australian Government, A Plan to Simplify Superannuation

A Plan to Simplify and Streamline Superannuation

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7. Other measures

Some changes are also proposed to related areas. This chapter sets out the Government’s proposed approach in these areas. In particular, it deals with the taxation of employer ETPs.

Key Points

  • Some changes may be necessary to limit concessions on large employer ETPs, reflecting the removal of the RBL system and benefits tax.
  • Greater use of tax file numbers will be encouraged.

7.1 Employer payments

7.1.1 Current arrangements for employer ETPs

  • ETPs are payments made by an employer to their employee on termination of employment. Not all termination payments are employer ETPs. For example, the tax free amounts of bona-fide redundancy and approved early retirement payments are not employer ETPs.
  • employer payments that are ETPs when paid because of termination of employment include the following payments related to:
  • unused rostered days off;
  • amounts in lieu of notice;
  • a gratuity or ‘golden handshake’;
  • an employee’s invalidity (permanent disability, other than compensation for personal injury);
  • bona-fide redundancy and approved early retirement schemes in excess of the tax free amount; and
  • certain payments after the death of an employee.

An employer ETP will have a post-June 1983 untaxed element and potentially a pre-July 1983 component, invalidity component and excessive component — the taxation treatment is as shown in Table 7.1.

Table 7.1: Summary of taxation of employer ETPs under current rules


Assessable portion

Current tax treatment

Post-June 1994 invalidity component

Not assessable


Pre-July 1983 component


Marginal rates

Post-June 1983 component (untaxed)


Under age 55 — 30%

Age 55 and over

    Up to threshold ($129,751) — 15%

    Over threshold — 30%

Excessive component (amount above RBL)



Rollover of employer ETPs to superannuation funds

An individual can currently roll over an employer ETP to a superannuation fund, effectively deferring any tax until it is later paid out as a superannuation benefit.

7.1.2 Proposed new arrangements for employer ETPs

Currently, both superannuation benefits and employer ETPs are counted together in assessing if they exceed the RBL. As the RBL is to be removed for superannuation benefits, it is necessary to consider whether new arrangements should apply for taxation of employer ETPs, particularly the application of an upper limit on the amount of employer ETPs that receive concessional taxation treatment.

It is proposed that employer ETPs be comprised of two components — exempt and taxable. The exempt component would be any post-June 1994 invalidity amount and the pre-July 1983 amount. This would be exempt from tax. The taxable component would be the post-June 1983 amount. This would be taxed at 15 per cent for amounts up to $140,000 for recipients aged 55 and over and at 30 per cent for those aged under 55. Amounts in excess of $140,000 would be taxed at the top marginal tax rate. As there would be no lifetime limit on concessionally taxed payments, employers would not be required to report these payments to the ATO.

Table 7.2 — Summary of proposed taxation of employer ETPs


Assessable portion

Proposed tax treatment

Exempt (post-June 1994 invalidity and pre-July 1983 amounts)

Not assessable

Not applicable



Under age 55

    Up to $140,000 — 30%

    Over $140,000 — Top MTR

Age 55 and over

    Up to $140,000 — 15%

    Over $140,000 — Top MTR

As superannuation benefits paid to those over age 60 would be tax free, it is proposed that employer ETPs would no longer be able to be rolled over into superannuation.

7.1.3 Other employer payments

It is not proposed to change the taxation treatment for bona-fide redundancy payments, approved early retirement scheme payments, or unused leave.

7.2 Non-quoting of tax file numbers

The tax system generally operates on the basis that the highest rate of tax is deducted where an individual has not quoted a tax file number.

7.2.1 Tax on contributions

It is proposed that in cases where a tax file number has not been quoted to a taxed fund, the top marginal tax rate would apply where taxable contributions to that fund for a member exceed $1,000. This threshold would lessen the potential impact on small superannuation account holders who have not quoted a tax file number and minimise compliance costs for the superannuation industry.

7.2.2 Undeducted contributions

It is proposed that superannuation fund trustees would, in future, only be able to accept undeducted contributions for or on behalf of a member, if the member’s tax file number has been quoted to the trustee.

7.2.3 Benefit payments

Currently, different withholding rates apply to different components of an ETP. The correct rate is determined by the component, the person’s age and whether the person gave the superannuation fund trustee their tax file number. Where the person has not quoted their tax file number, the superannuation fund withholds tax at the top marginal tax rate on any pre-July 1983 component and post-June 1983 component.

It is proposed under the new arrangements, that where a tax file number is not quoted only the post-June 1983 component (the taxable element) would be subject to withholding at the top marginal tax rate, as the pre-July 1983 component would be classed as an exempt component which is tax free.

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