How to withhold amounts from unused leave payments on termination of employment

The calculation of amounts to be withheld from unused leave payments depends on a number of factors. Check all dates and calculations carefully.

Introduction

Under the pay as you go (PAYG) withholding system, you are required to withhold amounts from certain payments made to payees. These amounts must be sent to the Australian Taxation Office (ATO) and are held against the person's expected tax liability.

This guide explains how to, on termination of employment, work out the amount to withhold from payments of unused:

• annual leave, and
• long service leave.

Historically, there have been a number of legislative changes that have determined how amounts withheld from payments of unused leave on termination of employment are calculated. These changes prescribed two dates as being critical to calculations:

• 16 August 1978, and
• 18 August 1993.

All examples in this guide use figures taken from Pay as you go (PAYG) withholding - Weekly tax table incorporating Medicare levy with and without leave loading (NAT 1005), effective 1 July 2006, as the basis for the marginal rate calculations. Please ensure that you use the most current PAYG withholding tax tables when calculating the amounts to be withheld.

Definitions for a number of the commonly used terms in this guide are provided for your convenience.

Sections within Introduction

• Payments where no tax file number is quoted
• Payments made after death