TABLE OF CONTENTS
- Unused leave entitlements
- Where its shown on the individual tax return
- Which payments are ETP
- part of the ETP that is tax-free
- how much of the ETP is taxed at a concessional rate
- the amount to withhold and how to complete the Income statement if you are reporting through STP or PSAR
Unused leave entitlements
if you are just paying unusued leave entitlements, then please go to these articles
It is generally NOT part of ETP - QC 26218.
Where its shown on the individual tax return
Which payments are 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|
Note there are certain things that are included in Genuine redundancy pays.
|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|
Note not all business are required to pay redundancy. See the rules.
Genuine redundancy payments
When there is genuine redundancy involved, check the following:
The tax-free limit is:
Base amount + (service amount × years of service)
The base amount and service amount are indexed annually.
For example, for 2020–21 the tax-free limit is equal to $10,989 (base amount), plus $5,496 (service amount) multiplied by the years of service. Therefore, for 10 years' service, the tax-free limit for the year ending 30 June 2021 is:
What is counted as part of genuine redundancy?
Depending on your employment conditions, a genuine redundancy total can consist of the following:
Any payments that meet the conditions of a genuine redundancy are tax free up to a limit based on your years of service with your employer.
The tax-free limit is a flat dollar amount plus an amount for each year of completed service in your period of employment with your employer. Indexation changes the tax-free limit on 1 July each year.
Your employer will report the tax-free amount as a lump sum on your income statement or PAYG payment summary – individual non-business. - Last modified: 25 Jun 2020 QC 27128
part of the ETP that is tax-free
- for invalidity (ill health. Not death)
- Amount of ETP × days to retirement ÷ (employment days + days to retirement)
- work done before 1 July 1983
how much of the ETP is taxed at a concessional rate
Last modified: 14 Apr 2020QC 2712
ETPs are concessionally taxed up to a certain limit, or 'cap'. The top rate of tax applies to amounts over the cap.
There are two caps:
- the ETP cap, which is
- indexed each year (in 2020–21 it's $215,000)
- reduced by any earlier ETPs paid in the same income year, and by any earlier ETPs for the same termination regardless of when they are paid.
- Last modified: 22 Jul 2020QC 18123
- the whole-of-income cap, which is
- reduced by any other taxable payments (such as salary and the taxable components of any earlier ETPs) received by the employee in the same income year.
Which of these caps applies depends on the type of payment. For example, a genuine redundancy payment and a 'golden handshake' may be subject to different caps
the amount to withhold and how to complete the Income statement if you are reporting through STP or PSAR
A death benefit dependant for taxation purposes includes:
- spouse of the deceased
- child of the deceased under 18 years old
- a person who had an interdependency relationship with the deceased
- a person who was a dependant of the deceased just before the latter died.
A spouse of the deceased includes another person (of any sex) who:
- was in a relationship with the deceased as registered under a prescribed state or territory law
- lived with the deceased on a genuine domestic basis in a relationship as a couple, although not legally married.
A child of the deceased includes:
Last modified: 14 Jun 2019QC 55466
- ETP introduction Last modified: 15 Nov 2016 QC 27127