ClearLaw has recently covered some of the reasons why updates may be required to SMSF deeds. These reasons may still be relevant to SMSFs in 'pension phase'. Here's why.Emily Millane and Anna Tang
A Genuine Redundancy Payment is defined as so much of a payment that an employee receives when they are dismissed from employment:
However, a payment made at the end of a fixed period of employment cannot normally be considered a Genuine Redundancy Payment. This is because for the payment to be characterised as a Genuine Redundancy Payment:
Genuine Redundancy Payments are tax free up to a limit (Tax Free Limit). The Tax Free Limit is calculated based on the following formula (Formula):
Base Amount + (Service Amount x Years of Service)
In the formula:
The amounts for each of these components are:
|2007-2008 income year||2008-2009 income year|
Any amount that exceeds the Tax Free Limit is taxed as an employment termination payment (ETP). The current rates of taxation for ETPs are:
|Age of recipient||
employment termination payment — 2008-2009
|Tax-free component||Taxable component (that is, taxed as an ETP)|
|55 years or older||Tax free||15% - $0-$145,000
45% - $145,0001 and above
|0-54 years||Tax free||30% - $0-145,000
45% - $145,001 and above
In the ruling (TR 2009/2), the Commissioner clarifies the requirements for a Genuine Redundancy Payment as:
The payment must be received in consequence of an employee's termination.
The Commissioner considers that a payment is made in consequence of the termination of the taxpayer's employment if the payment follows as an effect or result of the termination.
The termination must involve the employee being dismissed from employment.
Relevant considerations include:
The dismissal must be caused by the redundancy of the employee's position.
An employee's position is redundant if the employer determines that the position is:
The redundancy payment must be made genuinely because of a redundancy.
Whether a redundancy is a 'genuine' redundancy is determined on an objective basis.
The ruling sets out the following steps that should be undertaken to determine the tax treatment of a Genuine Redundancy Payment:
Identify and exclude any amounts that are subject to a more specific tax treatment. As set out in section 82-135, these include:
For questions or more information about the above article, please call Maddocks in Melbourne (03 9288 0555) and ask for a member of the Maddocks Tax and Revenue Team.
Daniel is a lawyer in the Maddocks Tax & Revenue team.Daniel advises extensively in the following areas:
His advice covers both direct and indirect tax considerations.
Prior to joining Maddocks, Daniel worked at a Big Four Chartered Accounting Firm focusing on tax consulting for mergers and acquisitions.
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For more information, contact Maddocks on (03) 9258 3555 and ask to speak to a member of their team.