ETPs|Wilson & Assoc Chartered Accountants

Employment Termination Payments

What is ETP?

An ETP is a lump sum payment you make to an employee when their employment is terminated, or to an employee’s estate because their employment has been terminated due to death.

What do ETPs include?

What are not included?

How are ETPs taxed?

ETPs have up to 3 tax treatments:

1. Tax-free, if part of the payment is for invalidity or work done before 1 July 1983.

2. Concessionally taxed up to a certain limit, known as a cap.

3. Taxed at the top marginal rate of 47% on the amount in excess of the relevant cap.

Tax-free

Genuine redundancy, early retirement scheme and invalidity payments are tax free up to a limit based on the employee’s years of service.

The tax-free amount is not part of the employee’s ETP. It’s reported as a lump sum in the employee’s income statement or PAYG payment summary – individual non-business.

Any amount over the tax-free limit is part of the employee’s ETP.

Concessionally taxed payments

There are two concessional tax rates on ETPs:

Depending on the type of ETP, the concessional tax treatment may be limited to the smaller of:

ETP cap

Whole-of-income cap

How can Wilson & Assoc help?

Our friendly team is here to support you in understanding the tax treatments and assessing your tax position in relation to your Employee Termination Payment. If you would like to learn more about the services we offer, you will be most welcome to contact us.

SOURCE: Australian Taxation Office

About Wilson & Assoc

Wilson & Assoc Chartered Accountants provides taxation and business advisory services to individuals, investors and businesses wherever you are based. We provide specialist services to startups and health care providers.

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Disclcaimer: The information provided within this article is general information only.  None of the comments in these notes are intended to be advice, whether legal, financial product or professional. You should obtain specific advice regarding your particular circumstances from a tax or legal professional.

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