March 19, 2019   |   Tips

Tax Treatment of ETP’s

Given the complexities of ETP’s, employers can sometimes be confused around the tax treatment of them.

In prior years, the tax treatment was based around an employee being under or over 55yrs old at the time of termination; whereby nowadays, these are based upon the preservation age of an employee.

Withholding Rates for ETP’s

The below table outlines the tax treatment and withholding rates for ETP’s.

Source: Fair Work (Accessed 18 March 2019)

Additional information

The ETP cap for the 2018–19 income year is $205,000. The ETP cap amount is indexed annually.

The whole-of-income cap for the 2018–19 income year and future years is $180,000. This amount is not indexed.

Preservation age

The withholding amount varies depending on whether the employee has reached their preservation age by the end of the income year in which the payment is made.

Preservation age is determined using your employee’s date of birth. For example, if your employee was born on 1 October 1962, they will reach their preservation age of 58 on 1 October 2020 within the 2020–21 income year.

The table below will help with this:

Source: Fair Work (Accessed 18 March 2019)

If you are a Definitiv customer, the Definitiv platform is set up to automatically calculate the tax for ETP’s by utilising the employee’s date of birth.