• Recipients of death benefit termination payments

    This information is for people who receive a death benefit employment termination payment (ETP) from another person's employer after the death of that person.

    The payment may have a tax-free and a taxable component.

    The tax treatment of the taxable component depends on:

    • whether you're a dependant of the deceased
    • whether the payment exceeds the ETP cap.

    On this page:

    ETP cap for death benefits

    The ETP cap is indexed each year (in 2016–17 it's $195,000).

    The death benefit ETP cap amount is independent of the life benefit ETP cap amount – this means payments that count towards one cap will not count towards the other.

    Meaning of 'dependant'

    You are a dependant of the deceased if, at the time of their death, you were one of the following:

    • a surviving spouse
    • a former spouse
    • a child of the deceased who is less than 18 years old
    • any other person who was financially dependent on the deceased
    • any person who had an interdependency relationship with the deceased.

    See also:

    Payment to a dependant

    If the ETP is paid to you directly and not through a trust, it will be taxed as follows:

    • the tax-free component of the death benefit will not be subject to tax
    • the amount of the taxable component up to the ETP cap will be tax free
    • the amount of the taxable component above the ETP cap will be taxed at the highest rate of 49%.

    You should receive a PAYG payment summary – employment termination payment from the deceased's former employer. Only the amount above the ETP cap will be shown as the taxable component on the payment summary.

    Payment to a non-dependant

    If the ETP is paid to you directly and not through a trust, it will be taxed as follows:

    • the tax-free component of the death benefit will not be subject to tax
    • the amount of the taxable component up to the ETP cap will be taxed at 32%
    • the amount of the taxable component above the ETP cap will be taxed at 49%.

    The taxable component is included in your assessable income.

    Payment to the trustee of a deceased estate

    If the payment is made to the trustee of a deceased estate, the trustee pays tax on the death benefit ETP. It is taxed in the same way it would have been taxed if the payment was made directly to a dependant or non-dependant, except that the Medicare levy (2% for 2016-17) does not apply. The trustee of the deceased estate will receive a PAYG payment summary – employment termination payment showing both the tax-free and taxable components of the ETP.

    See also:

      Last modified: 14 Nov 2016QC 50514