Northbridge Administration Services & Financial Consulting

While the information provided below is believed to be correct at the time of publication (July 2011) no liability is accepted if this is not the case. It represents an overview of tax and related issues and should not be relied upon for specific purposes. In addition, some changes announced in both the May 2010 and 2011 Federal Budgets are yet to be passed by Parliament.

Professional advice should always be taken in any particular case as individual circumstances can vary. Therefore, we would encourage you to seek financial advice before making any decision.

Employment Termination Payment Tax Rates

From 1 July 2007, an employment termination payment (“ETP”) is a payment in consequence of the termination of employment. It can include:

Amounts for unused rostered days off
Amounts in lieu of notice
A gratuity or “golden handshake”
An employee’s invalidity payment (for permanent disability, other than compensation for personal injury), and,
Certain payments after the death of an employee.

ETP’s do not include:

A payment for unused annual leave or unused long service leave, or
The tax-free part of a genuine redundancy payment or an early retirement scheme payment.

The amount up to the ETP cap amount will be concessionally taxed. The amount in excess of the ETP cap amount will be taxed at the top marginal rate.

ETP’s will comprise a tax free component (pre 30 June 1983 and invalidity components) and a taxable component (the balance of the payment).

The taxable component will be subject to an “employment terminations payment cap”. For the 2011/12 year the cap will be $165,000. This cap is an annual limit, and applies to all ETP’s received in a financial year.

Taxable amounts within the cap are taxed as follows:

Your Age	Tax on taxable component from 1 July 2011
Under preservation age* on the last day of the income year in which the payment is made	Up to $165,000 – taxed at a maximum rate of 30% plus medicare levy Amount over $165,000 – taxed at top marginal tax rate plus medicare levy
Preservation age* or over on the last day of the income year in which the payment is made	Up to $165,000 – taxed at a maximum rate of 15% plus medicare levy Amount over $165,000 – taxed at top marginal tax rate plus medicare levy

*Preservation age is the age at which retirees can access their super benefits generally on retirement. If you were born:
*before 1 July 1960, your preservation age is 55
*after 30 June 1960, your preservation age is between 55–60. Your preservation age will gradually increase from 55 to 60 between 2015 and 2025.

Age is based on the age at the end of the financial year in which the ETP is received. Taxable amounts will be counted towards the low rate threshold on superannuation lump sum benefit payments. Except for transitional arrangements (see below), employees will no longer be able to elect to roll-over ETP’s to superannuation.

Transitional ETP Cap Amounts

Transitional arrangements apply to ETP’s in the period 1 July 2007 to 30 June 2012, if the amount of the payment (or method of calculating the payment) was specified in a written contract, law, legal instrument or workplace agreement as at 9 May 2006. “Transitional termination payments” can be rolled over to superannuation, and an “upper cap” of $1,000,000 applies.

Taxable components of Transitional ETP’s are taxed as follows:

Your Age	Tax on taxable component of Transitional Termination Payments
Under preservation age* on the last day of the income year in which the payment is made	Up to $1 million – taxed at a maximum rate of 30% plus medicare levy Amount over $1 million – taxed at top marginal tax rate plus medical levy
Preservation age* or over on the last day of the income year in which the payment is made	Up to $165,000 – taxed at a maximum rate of 15% plus medicare levy Amount over $165,000 and up to $1 million– taxed at maximum rate of 30% plus medicare levy Amount over $1 million – taxed at the top marginal tax rate plus medicare levy

*Preservation age is the age at which retirees can access their super benefits generally on retirement.

Bona Fide (Genuine) Redundancy and Early Retirement Scheme Tax Rates

Bona fide redundancy is now known as “genuine redundancy” and individuals qualifying under either a genuine redundancy or approved early retirement scheme will continue to be entitled to a portion of the payment tax free. This amount will not constitute an ETP.

Any amounts received in excess of the tax-free portion (shown below) will still be an ETP, but will be taxed under the new ETP rules (described above).

Type of Payment	Assessable Part	Maximum Tax Rate
Redundancy and Approved Early Retirement
First $8,435 plus $4,218 for each completed year of service	NIL	Not applicable
Balance, Taxed as an ETP	As above	As above

Superannuation Lump Sum Member Benefit Tax Rates

Lump sum and pension benefits (known as “superannuation member benefits”) paid from a taxed superannuation fund at age 60 or over will be tax free. Members are not required to include these payments in their annual tax returns. The tax rates on lump sum withdrawals from Taxed superannuation funds are as follows:

Your Age	Tax Free Component	Taxable Component
Below Preservation age (or 55)	Nil	20%
Over Preservation age but under 60 Up to low tax threshold of $165,000* Excess over low tax threshold of $165,000*	Nil Nil	Nil 15%
Age 60 and above	The entire payment is tax-free after a member turns 60 and funds are not required to: Withhold any tax from a payment.

*Rates apply to post 30 June 1983 component (now referred to the “Taxable Component”).
The “Tax Free” component consists of the following:

undeducted contributions paid up until 30 June 2007; plus,
the pre 30 June 1983 component crystallised as at 1 July 2007; plus
any additional non-concessional contributions made after 1 July 2007.

Important Notes:

The rates of tax shown above assume that the member has provided the fund with a Tax File Number.
Medicare levy is payable in addition to the above rates.

Personal Tax Rates 2011 – 2012

The Government did not make any changes to the currently legislated tax rates which apply for the 2010/11 year and subsequent years. However, personal income tax rates have been adjusted to include the flood levy that applies for the 2011/12 financial year.

The flood levy is to be calculated as follows:

Taxable Income ($)	Flood Levy
0 – 50,000	Nil
50,000 to 100,000	0.5% of amount exceeding $50,000
100,000+	$250 plus 1% of amount exceeding $100,000

The personal tax rates for 2011/12 are as follows:

Taxable Income	Tax Rate on this Income (including the Flood Levy)	Taxable Income	Tax Rate on this Income*
$0 – $6,000	Nil	$0 – $6,000	Nil
$6,001 – $37,000	15%	$6,001 – $37,000	15%
$37,001 - $50,000	30%	$37,001 - $80,000	30%
$50,001 - $80,000	30.5%	$80,001 - $180,000	37%
$80,001 – $100,000	37.5%	$180,001 and over	45%
$100,001 - $180,000	38%
$180,001 and over	46%

*These rates apply post 1 July 2011 for exempt taxpayers, i.e. those that have received an Australian Government Disaster Recovery Payment.

Tax rates appearing in the above table apply to individuals who;

Are residents of Australia for tax purposes for the whole financial year, and
Did not leave full-time education for the first time during the financial year

Note that these tax rates do not include the Medicare levy.

Corporate Tax Rates

Tax Year	Rate
2001 onwards	30%

Superannuation Guarantee Legislation Timetable and Contribution Requirements

The current SG contribution rate is 9%.

Timetable for SG Contributions

From 1 July 2003, employers are required to pay their superannuation guarantee contributions on a quarterly basis. However, employers must continue to ensure that they comply with any award or workplace agreement that stipulates a more frequent payment.

The timetable is as follows:

Period	Due date for the payment of the SG contributions
1 July to 30 September	28 October
1 October to 31 December	28 January
1 January to 31 March	28 April
1 April to 30 June	28 July

Maximum contribution salary per quarter: $43,820 (2011/2012 year)

Contribution Limits, Tax Deductions and Rebates

Limits on Non-Concessional Contributions

What are the limits?

From 1 July 2007, a limit or cap of $150,000 per annum was imposed for “post tax” undeducted super contributions (referred to as “non-concessional” contributions) made by an individual.

To accommodate larger one-off payments, individuals under age 65 at any time in the first year can bring forward two years of future contribution entitlements, giving them a cap of $450,000 over three financial years. Non-concessional contributions can only be made after age 65 if the “work test” is satisfied and the $150,000 p.a. cap will apply without any bring-forward provisions.

From 1 July 2010, the non-concessional contribution cap will be six times the level of the (indexed) concessional contributions cap (see below) and the above caps continue to apply for the 2011/12 financial year.

What are the penalties for exceeding the limits?

Contributions in excess of the non-concessional cap will be subject to penalty tax at the top marginal tax rate plus the Medicare levy i.e. 46.5%. Where this occurs, the ATO will issue an assessment to the individual advising them of the additional tax liability. The individual must give this to the Fund for payment together with the relevant release authority (see further details below).

Limits on Concessional Contributions

What are the limits?

From 1 July 2009, a limit or cap of $25,000 per annum will be imposed for employer and self-employed/substantially self-employed tax deductible contributions (referred to as “concessional” contributions). A transitional concessional contributions cap of $50,000 per annum applies for clients aged 50 or over at any time in that particular “transitional” financial year. This transitional concessional contribution cap of $50,000, is due to expire on 30 June 2012.

Concessional contributions include:

All employer contributions* (including 9% SG contributions and any additional company contributions made to meet insurance and administration expenses etc);

Any salary sacrifice contributions; and,
Any deductible personal contributions (mainly applies to self-employed/substantially self-employed people).

*NB: There are specific regulations that apply to members of defined benefit plans. Further details are available upon request.

What are the penalties for exceeding the limits?

The ATO will identify any concessional contributions made above these limits and these contributions will be taxed at a penalty rate of 31.5%, in addition to the normal contributions tax rate of 15%. This is then equivalent to the top marginal tax rate of 46.5%. Where the limit has been exceeded, the ATO will issue an assessment advising of the additional tax liability. The individual must pay this personally unless they provide a “release authority” to the trustee within 21 days of receiving the assessment. In this case, the tax will be deducted from the superannuation account. We recommend that individuals who receive such an assessment should contact their financial or tax adviser.

Contributions which exceed the concessional contribution cap (i.e. $25,000 or $50,000) will count towards the non-concessional contribution cap (i.e. $150,000)

Important Reminder

It is important to note that each of the contribution caps described above apply to the total contributions made in respect of an individual during a financial year to all superannuation funds including defined benefit plans and allocations from reserves/surpluses. Particular attention needs to be taken to the total of the contributions made on behalf of the individual especially if they have one or more contributing employer or more than one fund accepting contributions on their behalf. The ATO will monitor all contributions (via the individual’s tax file number) and compare the total to the applicable cap.

With the introduction of the caps the responsibility for breaching the concessional contribution limit has shifted from the employer to the employee. Irrespective of whether an individual exceeds the concessional contribution cap or not, the employer will receive a full tax deduction for all contributions made on behalf of their employees under age 75.

As the penalties (i.e. the additional tax) for exceeding both the non-concessional and concessional contribution limits now apply at member level, rather than the employer losing tax deductibility for any “excess” contributions, it is responsibility of individual members to monitor their situation in regards to the contribution limits.

Spouse Super Contribution Offset

A tax offset of 18% applies to personal superannuation contributions up to $3,000 made on behalf of a spouse with assessable income plus reportable fringe benefits less than $10,800p.a. The maximum offset of $540 reduces where the spouse's assessable income, plus reportable fringe benefits, exceeds $10,800 and is nil when the spouse's assessable income exceeds $13,800p.a.

Co-Contributions for Low Income Earners

The “temporary” changes to the Co-contribution scheme announced in the 2009 Federal Budget have been scrapped and the proposed future increases to the maximum co-contribution of $1,500 will now not proceed. The maximum rate of co-contribution will be capped at $1,000. The current income thresholds of $31,920 (lower) and $61,920 (the cut-off level) will remain fixed for the next financial year i.e. 2011/12 (The Government has also announced changes that if passed by Parliament will freeze these amounts for the 2012/13 years as well).

The Co-contribution is $1 for every $1 of non-concessional contributions (i.e. personal, after-tax contributions) up to a maximum Co-contribution of $1,000 p.a. The maximum Co-contribution applies where the persons income (i.e. assessable income plus reportable fringe benefits plus Reportable Employer Superannuation Contributions (see definition of “RESC” below)) is less than $31,920 p.a. Above this income amount, the maximum Co-contribution reduces by 3.333 cents for each dollar of income to phase out completely at $61,920 p.a.

From 1 July 2009 the definition of income used to determine eligibility to the superannuation Co-contribution (and many other Government benefits) will be expanded to include income salary sacrificed to superannuation. If you make super contributions under a salary sacrifice arrangement or your employer contributes additional contributions on your behalf (not in all cases, contact us for clarification), these contributions will be classified as Reportable Employer Superannuation Contributions (“RESC”). RESC are not included in an individual’s assessable income but are:

Included on the annual payment summaries;
The employee must include them in their income tax return; and,
RESC affect a range of government entitlements for individuals.

You may be entitled to the Co-contribution if you:

make personal "after tax" contributions;
lodge a tax return for the financial year;
have assessable income, including RESC, plus reportable fringe benefits less than $61,920 p.a. in the financial year;
have employment income which is at least 10% of your income, assessable income plus reportable fringe benefits plus RESC, for the year;
are aged less than 71 at the end of the financial year when contributions are made;
are an Australian citizen or a permanent resident (you cannot hold an eligible temporary resident visa).

Effective 1 July 2007, the Co-contributions scheme was extended for self-employed persons.

From 1 July 2007, persons must generate 10% or more of their income (assessable income plus reportable fringe benefits – not reduced by business deductions) from employment or carrying on a business. In determining the amount of the Co-contribution entitlement, income is reduced by business deductions.

Co-contributions do not attract the 15% contributions tax and are both fully preserved and are treated as non-concessional contributions.