Letter of Advice to Carlos

Running head: LETTER OF ADVICE TO CARLOS
Letter of Advice to Carlos
Name of the Student
Name of the University
Author Note

LETTER OF ADVICE TO CARLOS1
Henry Chapman Associates
ANZ Tower 171 Middlesbrough Street
Sydney NSW 2000
Australia
Mr Carlos Lewis Our Ref: 507
180 Rodney Street 30 th September
2019
Sydney NSW 2000
Australia.
Dear Mr Carlos,
This letter is being sent to you as a follow up on our previous meetings and discussions regarding
your termination payment and the taxation on the amount withdrawn from your superannuation
fund. It is also intended to advice you about the best step that you should take to avoid the
taxability of your retirement funds.
Issue
You were born in 1957 and are 58 years old. In 2018, your job became redundant because
of the internal restructuring by the company in which you had been working since 2013. The
termination payments received by you were $75000. This also consisted the unused leave
payments of $14250. During that year, your total income up to the date you were fired was
$52000. Although you had been fired, you do not expect that you will not be employed anywhere
else. This may be either be full time employment or part time work. You currently hold fully
preserved holdings worth $400000 in a self-managed superannuation fund in which $350000 is a
part of the non-concessional contribution and $50000 is the accumulated earnings on which the
superannuation fund has paid the tax. In your superannuation fund, the majority asset is a
commercial investment property. Although your wife is a member of the fund, she does not
make any contribution towards it. Apart from this, you have $250000 in an industrial

LETTER OF ADVICE TO CARLOS2
superannuation fund. This consists of investment earnings of $125000 and accumulated
concessional contributions of $125000 on which the fund has paid the tax. Your mortgage
currently is $120000 and you need an additional income of $25000 p.a. and $18000 p.a. for
paying the same.
Law
Under subsection 83-175(1) of ITAA 1997, a termination payment constitutes a genuine
termination payment if it is received by the employee due to the reason that his position is
genuinely redundant. As per section 82.130 of ITAA 1997, an Employee Termination Payment
(EPT) is a form of lump sum payment that is received by a person from their employer on losing
their job or the death of another person resulting in the termination of the employment of the
person1. It should be received within 12 months of the death of the person and it is not a payment
covered under section 82-135 of the act. The ATO guidelines state that an ETP includes aspects
of salary like severance pays and gratuities. However, it does not include payments like accrued
annual leaves and redundancy payments that are not chargeable to tax. According to the ATO
rules, the ETP cap is indexed on a yearly basis. For the taxation year 2019-20, this limit after
indexation is available up to $210000. If the payments are more than this amount, then the
highest rate of tax is to be charged on the payments. If the payments are not paid in lump sum
and made on an instalment basis, then the payments previously made to the employees are
reduced from the current redundancy payments. If the termination of the employee takes place
before 1 July 1983, then a part of the income is not chargeable under tax. The tax free amount for
the year 2019-20 is to be calculated using the following formula: Base amount + (service amount
1 "Taxation of Termination Payments". 2019. Ato.Gov.Au. Accessed October 7 2019.
https://www.ato.gov.au/Business/Your-workers/In-detail/Taxation-of-termination-payments/?
page=4#Working_out_and_reporting_the_tax_free_amount.