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  • Employment termination payments – for employees

    This information is for people whose employment has been terminated. It explains how your termination payments are taxed and how to complete your tax return.

    When you leave work or change jobs, you may receive several lump sum payments that are taxed differently to your normal income. One of these may be an employment termination payment (ETP).

    ETPs are generally taxed at a lower rate than your normal income, provided the payment is made within 12 months of your termination. ETPs include:

    • payments for unused sick leave or unused rostered days off
    • payments in lieu of notice
    • a gratuity or 'golden handshake'
    • an invalidity payment for permanent disability.

    You may also receive lump sum payments for unused annual or long service leave, or the tax-free part of a genuine redundancy or early retirement scheme. These aren't part of your ETP but may also be concessionally taxed.

    You will receive one or more payment summaries or income statements showing the amounts you've been paid and the tax withheld. You use this information to complete your income tax return.

    You can't roll over your ETP to your superannuation.

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    Your payment summaries or income statements and tax return

    Your employer may give you one or more payment summaries or income statements showing the amounts you've been paid and the tax withheld.

    If your employer reports to us through Single Touch Payroll, they are no longer required to give you a payment summary. Instead, an income statement replaces your payment summary. You can access your income statement through ATO online services via myGov, your tax agent, or you can phone us on 13 28 61 for a copy.

    You use the information in your payment summaries or income statements to complete your income tax return.

    Find out what to do if you receive a:

    PAYG payment summary – individual non-business

    PAYG payment summary – individual non-business

    Label

    What this is

    What to do

    Lump sum A or B

    These lump sums are for unused annual leave and long service leave. They may be shown on your payment summary or on a letter or statement from your employer.

    See Tax table for unused leave payments on termination of employment

    These payments are not part of your ETP but may be concessionally taxed.

    Enter these amounts on your income tax return.

    Lump sum D

    If your termination was because of genuine redundancy or an early retirement scheme, your payments will include a tax-free component. This is shown at lump sum D.

    See Taxation of termination payments

    This tax-free component is not part of your ETP and is not assessable income.

    It should not be shown anywhere on your tax return.

    Lump sum E

    These payments relate to earlier income years and return-to-work payments.

    These are assessable payments and need to be declared on your tax return.

    PAYG payment summary – employment termination payment

    If your employer pays you an ETP, they must give you a PAYG payment summary – employment termination payment within 14 days. Your payment summary shows:

    • the taxable component of your ETP
    • the tax withheld
    • a code for the type of ETP.

    Enter each of these at question 4 on your tax return when you lodge it at the end of the income year.

    We use the code on your payment summary to work out which cap to apply and the correct rate of tax for your situation. ETPs are concessionally taxed up to the cap.

    If the code is O or P, your ETP is subject to the whole-of-income cap. This means if you earn more income after you leave work, you may pay more tax on your ETP when you lodge your tax return. See The whole-of-income cap and your tax.

    Your payment summary may also show a tax-free component. This is not assessable income.

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      Last modified: 23 Oct 2019QC 50513