Private ruling: Transitional termination payment
Published: June 2012
Ruling period: Year ending 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Q1: Can any part of the payment your client received be a directed termination payment as defined in section 82-10F of the Income Tax (Transitional Provisions) Act 1997 ? Advice/Answer No.


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 80-20 | Income Tax (Transitional Provisions) Act 1997 Section 82-10E | Income Tax (Transitional Provisions) Act 1997 Section 82-10F | Income Tax (Transitional Provisions) Act 1997 Section 82-10G

Reasons for decision: Summary: Because the Employer has made the transitional termination payment to your client directly and not to a complying superannuation fund, the payment cannot be a directed termination payment. The Commissioner does not have discretion to treat the payment as a directed termination payment. | Detailed Reasoning - Detailed reasoning: Where an employer proposes to make a transitional termination payment (TTP) to an employee, section 82-10E of the Income Tax (Transitional Provisions) Act 1997 (IT(TP)A) sets out the procedures to be followed, and the information to be provided. Section 82-10E of the IT(TP)A states: This section applies if an entity (the payer) proposes to pay a transitional termination payment to an individual. The payer must give the individual a statement (a pre-payment statement) meeting the requirements of this section. The statement must include the following information: · the amount (if any) that would be the tax free component of the transitional termination payment; · the amount (if any) that would be the taxable component of the transitional termination payment; · any other information specified in the regulations. The statement must also include details of the opportunity to make a choice in accordance with section 82-10F. Where an employee receives a pre-payment statement from an employer, the employee may choose to either: · receive a part or the whole of the TTP in cash; and/or · direct the employer to pay a part or the whole of the TTP into a complying superannuation fund on the employee's behalf. If the employee chooses to direct a TTP (or a part thereof) to be paid into a complying superannuation fund, section 82-10F of the IT(TP)A sets out the procedures to be followed and the timing of each procedure. Section 82-10F of the IT(TP)A states: A transitional termination payment (or part of such a payment) is a directed termination payment if: (a) the individual chooses, in accordance with this section, to direct the payment (or part of the payment) to be made; and (b) the payment (or part of the payment) is made on the individual's behalf as directed. | Detailed Reasoning - Choice to make payment: An individual may choose, within 30 days after a pre-payment statement about a transitional termination payment is given to the individual under section 82-10E, to direct the payer to use all or part of the payment to make a payment on behalf of the individual: (a) to a complying superannuation plan; or (b) to purchase a superannuation annuity. To make the choice, the individual must: (a) make it in the approved form; and (b) give the completed form to the payer. The payer must, immediately after receiving a completed form under subsection (3): (a) give the entity (or entities) to which payment is directed written notice of the amount that is to be paid, and of the tax free component of the amount; and (b) comply with the direction (or directions) in the form. Section 82-10G of the IT(TP)A states that: A directed termination payment made on your behalf, that you are taken to receive under section 80-20 of the Income Tax Assessment Act 1997 , is not assessable income and is not exempt income. From the above, it is clear that a payment is a directed termination payment (DTP) if an employee chooses within 30 days of receiving a pre payment statement from the payer to direct a transitional termination payment or part of it on the employee's behalf to a complying superannuation plan or to purchase a superannuation annuity. Only the payer can make a DTP to a complying superannuation fund on that employee's behalf pursuant to section 82-10F of the IT(TP)A. Once an employee receives the payment no DTP could subsequently be made to a complying superannuation fund. Further, the Commissioner does not have any discretion under the IT(TP)A to overlook the fact that the payment was paid directly to the employee. The Commissioner's view regarding the application of section 82-10F of the IT(TP)A is that once the TTP has been received then the provisions of section 82-10F of the IT(TP)A could no longer be enlivened, to give effect to what has already occurred under Subdivision 82-B of the IT(TP)A. In this case, your client was employed by the Employer. A PAYG payment summary shows that your client received a transitional termination payment from the Employer in the 2009-10 income year comprising of a taxable component and tax was withheld. Your client did not receive a pre-payment statement from the Employer. You state that your client was not aware of DTPs and as a consequence did not have the opportunity to direct the entire payment into superannuation. Had your client been provided with the correct information they would have directed the entire transitional termination payment into a complying superannuation fund. Notwithstanding the fact that the payment is a transitional termination payment, as the Employer has made the payment to your client directly and not to a complying superannuation fund, it cannot be a directed termination payment. Further, the Commissioner does not have a discretion to treat the payment as a directed termination payment. The Commissioner can only exercise a discretion when he is given that discretion in a law he administers.

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