Retrenchment payments and taxation

When you are retrenched you will receive information about your retrenchment payments from both your employer and Telstra Super.

When you are retrenched you will be entitled to:

  • A superannuation retrenchment benefit from Telstra Super
  • Employer retrenchment payments.

Superannuation Retrenchment Benefit

Your superannuation retrenchment payment may contain one or more of the following components: preserved super, restricted non-preserved super, unrestricted non-preserved super .Your super benefit also consists of two tax components – a tax-free component  and a taxable component.

Taxation of the taxable component of a super benefit
Age Tax on taxable component
Under 55*†  20%‡
55* or older† 

First $160,000 tax-free. 

Over $160,000 taxed at 15%‡.

60 plus Tax-free

* Current preservation age .
† On the last day of the financial year in which the payment was made.
‡ Plus Medicare levy.

 

Employer payments

Your employer retrenchment payment is made up of a number of components which are taxed in different ways. Your employer will provide you with an Employment Termination Payment or a Transitional Termination Payment pre-payment statement. These documents will detail the retrenchment payments to which you are entitled. Your payment may contain one or more of the following:

  • Employment Termination Payments (ETPs)
  • Transitional Termination Payments (TTPs)
  • other employer redundancy payments.
Employment Termination Payments (ETPs)

ETPs (including bona fide redundancy payments over the tax-free limit) consist of a tax-free component and a taxable component. Amounts that may be included in an ETP are:

  • bona fide redundancy payments over the tax-free limit
  • unused rostered days off and sick leave
  • payments in lieu, gratuities, compensation payments for loss of employment.
Taxation of the taxable component of an ETP
Age Tax on taxable component
Under 55*† 

First $160,000 taxed at 30%‡ (maximum).

Over $160,000, taxed at 45%‡.

55* or older† 

First $160,000 taxed at 15%‡ (maximum).

Over $160,000 taxed at 45%‡.
* Current preservation age .
† On the last day of the financial year in which the payment was made.
‡ Plus Medicare levy. 

 

Transitional Termination Payments (TTPs)

On 1 July 2007, Eligible Termination Payments (which could be rolled into super) were replaced by Employment Termination Payments (ETPs) (which cannot be rolled into super). However, under transitional arrangements until 1 July 2012, individuals with Eligible Termination Payments specified in existing contracts or agreements as at  9 May 2006, may be entitled to a TTP.

If you are entitled to a TTP, your employer will issue you with a TTP pre-payment statement. TTPs may be contributed to super at a significant tax saving, they consist of tax-free component and a taxable component. Amounts that may be included in a TTP are:

  • Bona fide redundancy payments over the tax-free limit
  • Unused rostered days off and sick leave
  • Payments in lieu, gratuities, compensation payments for loss of employment.
Taxation of the taxable component of a TTP
Age If rolled into super If taken as cash
Under 55*† 

First $1 million taxed at 15%.
Over $1 million counts towards your pre-tax contribution limit  and is taxed as follows:

  • 15% for amounts within the pre-tax contribution limit.
  • 45%‡ for amounts in excess of the pre-tax contribution limit. This amount also counts toward the post-tax contribution limit. Amounts in excess of the post-tax contribution limit are taxed a second time at 45%‡.

First $1 million taxed at 30%‡ (maximum).

Over $1 million taxed at 45%‡.

 
55* or older†   As above

First $160,000 taxed at 15%‡ (maximum).

Over $160,000 and up to $1 million: taxed at 30%‡ (maximum).

Over $1 million taxed at 45%‡.
    * Current preservation age.
    † On the last day of the financial year in which the payment was made.
    ‡ Plus Medicare levy.

     

    Other employer redundancy payments

    Other payments you may receive upon retrenchment include:

    • bona fide redundancy payments over the tax-free limit
    • unused annual and long service leave salary and wages owed to you.

    Leave that is not considered an ETP as a result of a retrenchment is taxed at concessional rates .

    Taxation of other employer redundancy payments for the 2010/2011 financial year
    Annual leave 100% of lump sum is taxed at 30%†(maximum).
    Long service leave accrued before 16 August 1978 5% included in assessable income and taxed at your Marginal Tax Rate†.
    Long service leave accrued after 15 August 1978 100% included in assessable income and taxed at 30%† (maximum).
    Bona fide redundancy payments
    These payments are tax-free to a limit and cannot be rolled into super. The amounts are indexed to AWOTE each July.     		Tax-free limit is $8,126 plus $4,064 for each complete year of service with your employer. Amounts in excess of the tax-free limit are treated as either a TTP or ETP depending on which you receive.
    † Plus Medicare levy.