Employment termination and other payments
A death benefit termination payment is an employment termination payment (ETP) received by a person after another person's death in consequence of termination of the other person's employment.
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Dealing with employment termination payments can be complicated. If you have received or are due to receive one, we recommend you seek professional advice.
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The tax you pay on a death benefit termination payment will depend on a number of factors including:
- whether the payment is made
- the total amount of payments received in consequence of the same termination of employment - there is an ETP cap amount which limits the amount of death benefit termination payments that can be concessionally taxed
- the taxation components of the ETP, where the
- tax-free component is so much of the payment that consists of the invalidity segment and the pre-July 1983 segment of the payment
- taxable component is the amount of the payment less the tax-free component.
If you receive a death benefit termination payment that is tax free, don't include the payment in your tax return. The employer will not withhold any tax or give you a payment summary.
If you receive a death benefit termination payment that is taxable, the employer will send you a PAYG payment summary - employment termination payment (NAT 70868). The payment summary will show the payment amount and the tax withheld. It will also show any taxable component of the benefit that you must include as part of your income in your personal tax return.
Taxation of payment made to a dependant
If you are a death benefit dependant, the taxable component up to the ETP cap amount is tax free. The amount in excess of the ETP cap amount is taxed at the highest marginal rate of tax - that is, 45% plus Medicare levy. The tax-free component is always tax free.
You are a death benefit dependant if at the time of their death you:
- were their spouse or de facto spouse (whether of the same or different sex)
- were a former spouse or former de facto spouse
- were a child of the deceased person and you were under 18 years of age
- relied on the deceased person for financial maintenance, or
- lived with the deceased in a close personal relationship where one or both of you provided for the financial and domestic support and personal care of the other (this is known as an interdependency relationship).
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For more information about whether you are a dependant, phone us on 13 10 20.
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Taxation of payment made to a non-dependant
The taxable component of a death benefit termination payment paid to a non-dependant of the deceased is taxed at a maximum rate of 30% plus Medicare levy up to the ETP cap amount. The amount in excess of the ETP cap amount is taxed at the highest marginal rate of tax - that is, 45% plus Medicare levy. The tax-free component is always tax free.
Taxation of payment made to the trustee of a deceased estate
A death benefit termination payment paid to the trustee of the deceased estate is taxed in the hands of the trustee in the same way as if paid directly to a beneficiary. For example, if the beneficiary is a dependant of the deceased the payment would be taxed as if paid to a dependant - that is, tax-free up to the ETP cap amount and 45% on excess amounts. The beneficiary does not include the payment in their personal tax return.
ETP cap amount
The ETP cap amount limits the amount of death benefit termination payments that can be concessionally taxed. The ETP cap amount applies to the total amount of death benefit termination payments for the same termination of employment, irrespective of the financial years in which the payments are received. The ETP cap amount is indexed annually.
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The death benefit ETP cap amount operates independently of the life benefit ETP cap amount. This means payments that count towards one cap will not count towards the other.
To find out the low rate cap amount, refer to 'Eligible termination payments' in Key superannuation rates and thresholds.
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Deceased estates - home
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Last Modified: Thursday, 28 June 2012