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Employment related payments (ETP)

Section: 6.5

6.5 Employment related payments (ETP)

Payments included in ETPs Payments not included in ETPs
  • A gratuity or golden handshake
  • Accrued leave payments for unused annual leave and long service leave
  • Genuine redundancy or early retirement scheme payments above the tax-free limit
  • Genuine redundancy or early retirement scheme payments up to the tax-free limit
  • Severance pay
  • Salary, wages, allowances, bonuses and incentives owing to the employee for work done or leave already taken
  • Non-genuine redundancy payments
  • Super benefits (for example, a lump sum or income stream from a super fund)
  • Payments in lieu of notice of termination
  • Foreign termination payments
  • Unused rostered days off (RDOs)
  • Certain payments for restraint of trade
  • Unused sick leave
  • Certain payments for personal injury if the employee is compensated for their inability to be employed
  • Compensation for loss of job
  • Employee share scheme payments
  • Compensation for wrongful dismissal, as long as it is paid within 12 months of the actual termination of employment
  • An advance or loan
  • Payments for loss of future super payments
NA
  • Payments arising from an employee's termination because of ill health (invalidity), other than compensation for personal injury
NA
  • Lump sum payments paid on the death of an employee
NA
Source: ATO  

Genuine redundancy and early retirement scheme payments

Income year Based amount For each completed year of service
2021-22 $11,341 $5,672
2020-21 $10,989 $5,496
2019-20 $10,638 $5,320

The tax-free amount of a redundancy payment for 2021-22 is calculated as follows:

$11,341 + ($5,672 x completed years of service)

Employment Termination Payments (ETP)

Component Age when paid Amount subject to tax (up to the ETP Cap) Max tax rate*
Line benefit ETP
Taxable component Under preservation age Up to $225,000  32.0%
  At or above preservation age Up to $225,000 17.0%
  All ages Up to $225,000 47.0%
Death benefit ETP paid to non-dependents
  • taxable component
All ages Up to $225,000 32.0%
    Above $225,000 47.0%
Death benefit ETP paid to dependents
  • taxable component
All ages Up to $225,000 Nil
    Above $225,000 47.0%
Death benefit ETP paid to dependents
  • taxable component
*Taxed in the hands of the beneficiary of the estate, as above, based on whether the beneficiary is a dependent or not.
Whole-of-income cap The whole-of-income cap will remain at $180,000 (as it is not indexed)

*Includes Medicare levy and an ETP must generally be made within 12 months of terminating employment in order to qualify for lower tax rates.

Unused annual leave payment rules:

Period of accrual leave Assessable portion Maximum rate
General retirement or termination: 100%

100%

30%

Marginal

  • accrual before 18 August 1993
  • accrual on or after 18 August 1993
Bona fide redundancy amount, early retirement scheme amount or invalidity amount paid on or after 18 August 1993 100% 30%

Unused Long service leave payment rules:

Period of accrual leave Assessable portion Maximum rate
General retirement or termination:
  • accrual before 16 August 1978
  • accrual 16 August 1978 to 17 August 1993
  • accrual on or after 18 August 1993

Bona fide redundancy amount, early retirement scheme amount or invalidity amount:

  • accrual before 16 August 1978
  • accrual on or after 16 August 1978
5%

100%

100%

5%

100%

Marginal

30%

Marginal

Marginal

30%ff

This technical resource is intended for the use of financial advisers only. It is current as at the date of publication but may be subject to change. This publication has been prepared without taking into account a potential investor's objectives, financial situation, needs or objectives. Before making a recommendation based on this material, you should consider its appropriateness based on the client's objectives, financial situation and needs. Rainmaker Group is not a registered tax agent under the Tax Agent Services Act 2009. Your client should refer to a registered tax agent before relying on information published herein that may impact their tax obligations, liabilities or entitlements.

Last modified: Friday, July 9, 2021