Is it correct that in the case of an employee who receives financial compensation for a period of wrongful termination that extends over more than one financial year, provision can be made under the Income Tax Assessment Act for the lump sum payment to be split between the financial years for income tax payment purposes yet the same lump sum that includes a superannuation contribution to a superannuation fund is assessed as a single payment for surcharge/tax purposes.

With respect to income tax liability, a taxpayer who receives eligible income in a lump sum payment in respect of earlier years of income may be entitled to a tax offset.  Eligible income includes back payment of salary or wages paid to a person in respect of a period of suspension.  To be eligible for the tax offset, the amount of the lump sum which accrued before the year of receipt must not be less than 10 per cent of the normal taxable income of the year of receipt.

In respect of the superannuation surcharge, the Government announced in the 2005-06 Budget that it will abolish the surcharge payable on surchargeable contributions and termination payments received from 1 July 2005.  Consequently, the treatment of lump sum payments received from that date for surcharge purposes is irrelevant.