Employment Termination Payments (ETPs) | What are ETPs?

What are ETPs?

The following payments are examples of ETPs;

• Payment for accrued or unused sick leave;
• Payment for accrued or unused rostered days off and time in lieu;
• Pay in lieu of notice; and
• Ex-gratia payments

Tax treatments of ETPs

The taxation of ETPs depends on an employee’s preservation age for the financial year in which they are terminated. Given the complexities of ETPs, employers can sometimes be confused about their 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 ETPs

The below table outlines the tax treatment and withholding rates for ETPs.

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.

Under the preservation age

If under the preservation age, ETPs are taxed at 32% up to $210,000 and 47% on amounts over $210,000.

Over the preservation age

If an employee is over the preservation age, they will be taxed at only 17% up to the $210,000 mark and 47% on amounts over $210,000.

The initial rates up to $210,000 may increase to 47% in both above cases if subject to the whole income cap.

For more information on ETP withholding rates, visit the ATO website.

ETPs and preservation age

The ATO uses the following date of birth ranges to work out the preservation age of an employee for an ETP.

Important note: The above is not to be confused with the age pension qualifying age for redundancy.

Source: Fair Work (Accessed 18 March 2019)

Access Definitiv automatically calculates the tax for ETPs by utilising the employee’s date of birth. For more information on Access Definitiv Talk to a Specialist today.