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  • Recipients of death benefit termination payments

    A death benefit employment termination payment (ETP), is a payment you receive 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
    • the payment exceeds the ETP cap.

    On this page:

    ETP cap for death benefits

    We index the ETP cap each year (in 2020–21 it's $215,000).

    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're 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 you receive the ETP directly and not through a trust, tax is withheld (including Medicare levy) on the payment 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.
    • Tax is withheld at 47% on the amount of the taxable component above the ETP cap.

    You should receive a PAYG payment summary – employment termination payment from the deceased's former employer. The taxable component above the ETP cap is the amount the employer will report on the payment summary.

    Payment to a non-dependant

    If you receive the ETP directly and not through a trust, tax is withheld (including Medicare levy) on the payment as follows:

    • The tax-free component of the death benefit will not be subject to tax.
    • Tax is withheld at 32% on the amount of the taxable component up to the ETP cap.
    • Tax is withheld at 47% on the amount of the taxable component above the ETP cap.

    You include the taxable component in your assessable income.

    Payment to the trustee of a deceased estate

    If the payment goes to the trustee of a deceased estate, the trustee pays tax on the death benefit ETP. Tax is withheld in the same way it would be if the payment was made to a dependant or non-dependant. The exception is that the Medicare levy (2% for 2020-21) does not apply. The trustee of the deceased estate will receive a PAYG payment summary – employment termination payment from the deceased's employer. The payment summary will show both the tax-free and taxable components of the ETP.

    See also:

      Last modified: 26 May 2021QC 50514