Sometimes it takes days for interesting Budget stories to emerge and so it was with this one that The AFR published on Saturday:
High-paid executives face sharply higher tax bills on their
termination payments under changes in the budget that spell the end of
the controversial golden handshake. As part of Treasurer Peter
Costello’s reforms to superannuation, termination payments above
$140,000 will be taxed at the top 45% tax rate, instead of the
current rate of 30%.
Executives will also be banned from rolling over their payouts into
superannuation, a strategy that traditionally allows them to cut to 15%
or less the tax they pay. The changes, which will take effect
on July 1, 2007, are expected to trigger a wave of resignations and
contract renegotiations as they could cost top executives hundreds of
thousands of dollars.
Now without wishing to gloat, Crikey has been a lone voice in the media
banging on about this rort over the past year. CEOs who either retire
or come to the end of their contracts remarkably end up with
“termination” payments in the annual report because it is hugely
advantageous from a tax perspective.
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The three worst examples were as follows:
Ted Kunkel: ran Fosters for 12 years but still managed a $3.4 million “termination” payment despite supposedly retiring on good terms.
Paul Anderson: left BHP after engineering the Billiton merger, but scored a $3.2 million “termination” payment and is now back as a director.
Rob Turner: didn’t have his contract at IOOF renewed when it expired but still managed a $2 million “termination” payout.
Now that Cossie has closed the loophole, it would be interesting to
know what the tax treatment of Fred
Hilmer’s $4.5 million “retirement benefit” from Fairfax was all about.
And soon-to-depart CEOs such as Roger Corbett at Woolworths and David
Morgan at Westpac might have some quick footwork to do if they want to
cash in before the loophole closes. Former Colonial First State CEO Chris Cuffe must also be relieved he
pocketed his $26.5 million termination payout under the old system.
Having ended this rort, Cossie should not turn his mind to option
valuations and the 50% discount on capital gains tax for equity schemes
as these are also being widely abused by the CEOs of some of our