Pending retirees should reconsider plans
Deloitte Federal Budget media releaseDOWNLOAD
Tuesday 8 May 2012: The Government announced in the Federal Budget that the concessional tax treatment on employment termination payments (ETPs) will be further limited from 1 July 2012.
“This is the third change to the taxation of ETPs in six years and will cause angst particularly for those planning retirement within the next year or so,” said John Randall, superannuation tax partner at Deloitte.
“Despite the Government’s desire to provide incentives for older workers to remain in the workforce, the ETP changes may create a flood of early retirements in order to enable access to ETPs before the new taxation rules come into effect.
“To the extent that the ETP takes an individual’s income over $180,000, that part of the ETP will not be eligible to current concessions and will be taxed at marginal rates plus Medicare.
“For example, a person earning $150,000 who receives an ETP of $175,000 will get concessional rates on only $30,000, and pay marginal rates on $145,000. Prior to the change, the concessions would have meant that the ETP would have had a maximum tax rate of 15% or 30% plus Medicare, depending on age.
“Employees who had planned to retire post 1 July 2012 will need to reconsider their plans and possibly take their retirement this financial year or early in the new financial year when their taxable income is likely to be lower,” Randall said.