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  • Multiple payments

    Both the whole-of-income cap and the ETP cap are reduced by earlier life benefit ETPs paid to the employee in the same income year, even if they are for different terminations.

    In addition, the ETP cap is reduced by earlier life-benefit ETPs paid for the same termination, even if the payments are in different income years.

    These reductions affect the caps for:

    The death benefit ETP cap amount is independent of the life benefit ETP cap amount. Payments that count towards one cap don't count towards the other.

    ETP paid in instalments

    You may choose to pay an ETP in instalments. For payments made after the initial payment, the cap amount is reduced by the previous payment or payments for the same termination that counted towards the cap.

    Example: ETP paid in instalments

    Craig retired from his job in a law firm in December 2019 and received a termination payment of $100,000 paid in two instalments – $50,000 in December 2019 and $50,000 in June 2020. At the time he retired, he had taxable income from wages of $95,000.

    Craig’s ETP was a non-excluded termination payment that is subject to the lesser of the ETP cap and whole-of-income cap.

    His whole-of-income cap ($180,000) is reduced to $85,000 – that is, $180,000 minus $95,000 taxable income from wages – while his ETP cap is $210,000 (for 2019–20). The whole-of-income cap will apply because it is the lesser of the two caps.

    Craig’s first payment of $50,000, received in December 2019, is less than the calculated whole-of-income cap of $85,000 and will be concessionally taxed. His whole-of-income cap is now further reduced to $35,000 – that is, $85,000 minus the $50,000 termination payment.

    For the second payment of $50,000, received in June 2020, only $35,000 falls within the calculated whole-of-income cap and is taxed at a concessional rate. The remaining $15,000 is taxed at the highest tax rate (47% in 2019–20).

    End of example

    Multiple ETPs

    The ETP cap is reduced by earlier life benefit ETPs for the same termination, even if they are paid in different income years. This prevents splitting payments to avoid the ETP cap.

    The ETP cap is also reduced by any earlier ETP received in the same income year, even if it is for a different termination.  

    Example: Multiple ETPs for the same termination paid in different financial years

    Lloyd's employment is terminated in June 2019 and he receives a $110,000 ETP. His final entitlements are calculated several weeks later and a second ETP for $105,000, is paid in August 2019.

    Both payments are excluded payments that are subject only to the ETP cap.

    The first ETP of $110,000 is paid in 2018-19 and it is less than the ETP cap ($205,000 in 2018–19) is concessionally taxed.

    Lloyd’s ETP cap for the second ETP of $105,000 paid in 2019–20 is only $100,000 because the $210,000 ETP cap for 2019-20 is reduced by the earlier ETP for the same termination – that is, $210,000 minus $110,000.

    As a result, $5,000 – that is, the $105,000 ETP minus reduced ETP cap $100,000 – will be taxed at the highest tax rate (47% in 2019–20).

    End of example

    Single ETP with excluded and non-excluded payments

    A single ETP may contain both:

    • an excluded part (for example, a genuine redundancy payment) that is subject solely to the ETP cap, and
    • a non-excluded part (for example, a gratuity) that is subject to the lesser of the ETP cap and whole-of-income cap.

    The excluded part is taken into account first, then the non-excluded part:

    • Apply the ETP cap to the excluded part.
    • Apply the lesser of the remaining ETP cap and the whole-of-income cap to the non-excluded part. When calculating the whole-of-income cap, the employee's taxable income does not include the taxable component of the excluded part.

    You'll need to issue two ETP payment summaries – one for the excluded part and one for the non-excluded part.

    Example: Single ETP with excluded and non-excluded parts

    Robyn receives a single ETP of $170,000 in 2019–20. It consists of two parts:

    • $120,000 compensation for unfair dismissal – this is an excluded payment that is subject to the ETP cap only
    • a $50,000 gratuity – this is a non-excluded payment that is subject to the lesser of the whole-of-income cap and ETP cap.

    Robyn also earned $20,000 in salary and wages.

    Even though the two parts are in the one ETP, the excluded part is taken as being received first. The entire $120,000 of her compensation payment is an excluded payment and is taxed at a concessional rate because it is less than the ETP cap.

    The balance of the ETP cap is $90,000 ($210,000 for 2019–20, minus $120,000).

    The gratuity part of Robyn’s ETP is subject to the lesser of the two caps. Robyn’s calculated whole-of-income cap is $160,000 ($180,000 reduced by her $20,000 salary).

    Because Robyn's ETP cap ($90,000) is the lesser of the two caps, it applies to her $50,000 gratuity. All of Robyn's gratuity will receive concessional tax treatment.

    End of example

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      Last modified: 04 Jun 2019QC 26218