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Tuesday, 16 October 1984
Page: 1806

(Question No. 246)

Senator Messner asked the Minister representing the Treasurer, upon notice, on 3 June 1983:

(1) Why are the payments for contractual termination and for the loss of office or employment by self-employed people to be subject to the new 'super tax', while employees redundancy payments in similar circumstances are not.

(2) Is the limiting period in which lump sums may be 'rolled-over' into another fund and thereby exempted from tax, to be 90 days.

(3) How will this affect the unemployed person who may be employed, for example , for six months.

Senator Walsh —The Treasurer has provided the following answer to the honourable senator's question:

(1) The Income Tax Assessment Act (No. 3) 1984 introduced new measures for the taxing of lump sum superannuation and kindred payments, received on retirement or termination of employment. As I foreshadowed in a supporting statement to my Economic Statement of 19 May 1983, the amending legislation made no change in the tax arrangements relating to bona fide redundancy payments, provided such payments meet certain criteria.

Under these criteria, a bona fide redundancy payment is calculated as being the excess amount an employee receives above the amount that he or she would have received had resignation or retirement from employment occurred. The taxpayer must be prematurely dismissed by reason of his or her bona fide redundancy and there must be no arrangement for the re-employment of the person. Where the employer and employee are not dealing with each other at arm's length, the payment must be no greater than the amount which would have been paid if the employer and employee were dealing at arm's length.

These criteria may not be relevant to the case of a self-employed person. Furthermore, amounts received by self-employed people in connection with the cancellation or variation of trade or other commercial contracts made in the course of carrying on a business are in the nature of income and are fully assessable to tax. Those payments have never been treated concessionally under the income tax law. The effect of the new legislation is that the previously existing treatment of the relevant payments is being maintained for both employees and self-employed people.

(2) For payments received after 1 September 1984, the roll-over period will, in normal circumstances, expire 90 days after the date of payment, although the Commissioner of Taxation may extend the period in special circumstances. Under that authority, the roll-over period for eligible termination payments received up to 1 September 1984 has been extended to expire on 30 November 1984.

(3) I have assumed that the honourable senator means to refer to a person who is unemployed for six months. On this basis, an unemployed person who wishes to transfer his or her lump sum superannuation entitlement into the superannuation fund of a new employer, but who has not found new employment by the end of the roll-over period, will be able to deposit that money to one of the approved deposit funds established to receive on deposit amounts of eligible termination payments.