Employment Termination Payment
What exactly are Employment Termination Payment(ETP)s?
ETPs are a range of payments that employees might receive upon ending their employment and represent a variety of scenarios and reasons.
Golden Handshakes
Redundancy Payments
Severance Pay
Non-genuine Redundancy
Notice Payouts
Unused RDOs
Sick Leave Payouts
Compensation for Loss of Job or Wrongful Dismissal
Future Super Losses
Invalidity payments
Payments upon an employee's death.
Death Benefits and Foreign ETPs
When not to include an ETP
Certain payments should not be included in your tax return as ETPs.
Foreign termination payments taxed in another country.
ETPs received as a trustee of a deceased estate (marked with ETP code T).
Departing Australia superannuation payments.
Remember, when it comes to ETPs, you're not just crunching numbers; you're charting the course of your financial journey post-employment. Let's navigate this path with clarity, confidence, and expertise!
FAQs
Q: What is Employment Termination Payment (ETP)?
A: ETPs include payments like gratuities, certain redundancy payments above the tax-free limit, severance pay, and compensation for job loss. These payments are typically made when your employment ends.
Q: How do I know if my redundancy payment is genuine or non-genuine?
A: A genuine redundancy payment is made when your job is abolished, and you're not replaced. In contrast, a non-genuine redundancy occurs under different circumstances, such as voluntary redundancy or termination for misconduct. The ATO has specific criteria to determine this.
Q: Are all ETPs taxable?
A: No, not all ETPs are taxable. Some parts of an ETP, like the tax-free component of a genuine redundancy, are not taxable. However, other components, like the taxable component, are subject to tax at a concessional rate up to a certain cap.
Q: How do I declare my ETP on my tax return?
A: ETPs should be declared in the "Income statements" section of your tax return. The payment summary or income statement from your employer will categorize the ETP with a specific code, which helps in reporting it accurately.
Q: What is the tax-free limit for redundancy payments?
A: The tax-free limit for redundancy payments is calculated based on your years of service with the employer. The ATO provides a formula that includes a base limit plus an additional amount for each year of service.
Q: Can I claim deductions related to my employment termination payments?
A: Yes, you might be able to claim deductions related to your employment eligible termination payment, such as legal fees paid to dispute the termination or seek compensation. However, personal legal expenses are generally not deductible.
Q: What should I do if I receive an ETP after I have already lodged my tax return?
A: If you receive an ETP after lodging your tax return, you may need to amend your return to include this income. The ATO provides resources on how to make an amendment to your tax return.
Q: How do I handle a late tax on employment termination payment?
A: Late termination payments, received more than 12 months after termination, are treated differently. They are still declared as ETPs but may not qualify for certain tax offsets or concessions.
Q: What is a 'golden handshake,' and how is it taxed?
A: A 'golden handshake' is a type of gratuity or severance pay, often given to executives as part of their employment termination package. It's taxed as part of the ETP and may include a tax-free component depending on your employment contract and conditions.
Q: Where can I find more information or get help with my ETP declaration?
A: For more detailed guidance, you can refer to the ATO's website or consult with a tax professional. The ATO provides comprehensive information on various types of ETPs and their tax treatment.
