Employment termination payments tax offset

As part of the 2012-13 Budget, the government announced it is revising the way that employment termination payments (ETPs) are taxed.

From 1 July 2012 there will be an additional $180,000 non-indexed whole of income cap based on an individual's yearly taxable income that will work in addition to the existing ETP cap rules on some employment termination payments.

An individual will receive an ETP cap, being the lesser of either:

the existing lifetime benefit ETP cap ($175,000 in 2012-13)
the $180,000 'whole of income' cap.

The $180,000 will be reduced by other taxable income (excluding the employment termination payment in question) that the individual may receive in that income year.

The $180,000 whole of income cap will not apply to:

genuine redundancy payments
early retirement scheme payments
invalidity payments
compensation received due to a genuine employment related dispute relating to personal injury, harassment, discrimination or unfair dismissal
death benefit payments.

Taxation arrangements for unused annual leave and long service leave payments are not changing.

Media release

Media release no 034 jointly issued on 8 May 2012 by the Treasurer and the Assistant Treasurer and Minister assisting for deregulation.

Legislation and supporting material

The following legislation received royal assent on 21 June 2012;

More information

For more information refer to 2012-13 Budget paper No. 2 page 33.

Last Modified: Wednesday, 4 July 2012