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An employment termination payment (ETP) is a lump sum payment you make to an employee when they stop working for you. ETPs are taxed at different rates depending on your employee’s age and length of employment.
An ETP must generally be made within 12 months of your employee’s termination in order to qualify for lower rates of tax. There is a limit on the amount of an ETP that qualifies for a lower rate of tax. This limit is called a cap. For ETPs made after 1 July 2012, two different ETP caps can apply:
The whole of income cap is a non-indexed cap that applies to some ETP and works in conjunction with the ETP cap.
The ETP cap that applies to all ETP and has a threshold that is indexed each year.
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Taxation of termination payments – ETP caps
An ETP may include:
An ETP does not include:
If you pay your employee an ETP, you must:
Taxation of termination payments
Schedule 32 – Tax table for employment termination payments (NAT 70980).
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