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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

Last modified: 20 Jul 2020 QC 26218 

 

Payments included in ETPsPayments not included in ETPs
A gratuity or golden handshakeAccrued leave payments for unused annual leave and long service leave
Genuine redundancy or early retirement scheme payments above the tax-free limitGenuine 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 paySalary, wages, allowances, bonuses and incentives owing to the employee for work done or leave already taken
Non-genuine redundancy paymentsSuper benefits (for example, a lump sum or income stream from a super fund)
Payments in lieu of notice of terminationForeign termination payments
Unused rostered days off (RDOs)Certain payments for restraint of trade
Unused sick leaveCertain payments for personal injury if the employee is compensated for their inability to be employed
Compensation for loss of jobEmployee share scheme payments
Compensation for wrongful dismissal, as long as it is paid within 12 months of the actual termination of employmentAn 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



Redundancy

Note not all business are required to pay redundancy. See the rules.


Genuine redundancy payments 

When there is genuine redundancy involved, check the following:

tax-free threshold

Last modified: 22 Jul 2020QC 18123 


Tax-free Formula

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:


IncludesExcluded
  • payment in lieu of notice
  • serverance payment of a number of weeks' pay for each year of service
  • a gratuity or 'golden handshake'
  • salary/wages/allowance owing to you for work done or leave already taken for work completed
  • lump sum payments of unused annual leave or leave loading paid on termination of employment
  • lump sum payments of unused long service leave paid on termination of employment under a formal arrangement
  • payments made in lieu of superannuation benefits


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) 


OR

  • 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    
    • $180,000
    • 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:

  • an adopted child, stepchild or ex-nuptial child
  • a child of the deceased’s spouse
  • a child of the deceased within the meaning of the Family Law Act 1975 (for example, a child who is considered to be a child of a person under a state or territory court order giving effect to a surrogacy agreement).



Presevation age

Last modified: 14 Jun 2019QC 55466




Reference