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  • ETP caps

    The following table lists the types of ETPs that are subject to withholding and the applicable cap for each type of payment.

    For payments in column 2, both caps are considered, and the smaller cap applies. Withholding will be required to be made at the top rate of tax on the amount over the smaller of the two caps.

    Applicable caps for ETPs subject to withholding

    Column 1
    ETP cap only applies to:

    Column 2
    Smaller of the ETP cap or whole-of-income cap applies to:

    a payment made under an early retirement scheme that exceeds the tax-free limit (see Note 1) – only the amount in excess of the limit is an ETP

    a ‘golden handshake’ whether paid under:

    • contract
    • industrial award obligation
    • recognition of prior service

     

    a genuine redundancy payment that exceeds the tax-free base limit and for each complete year of service limit (see Note 1) – only the amount in excess of the limit is an ETP

    a non-genuine redundancy payment

    a payment made because of the employee’s permanent disability

    severance pay

    compensation payment for personal injury

    a gratuity

    compensation for unfair dismissal

    a payment in lieu of notice

    compensation for harassment

    a payment for unused sick leave

    compensation for discrimination

    a payment for unused rostered days off

    lump sum payments paid on the death of an employee.

    an ETP not covered in column 1.

    Note 1: The tax-free base limit for the 2020–21 income year is $10,989 plus $5,496 for each completed year of service.

    Find out about:

    Steps to work out smallest cap

    Follow these steps to work out the smaller of the ETP cap and whole-of-income cap:

    1. Add up all taxable payments you made to your employee (excluding the ETP).
    2. Subtract the step 1 result amount from $180,000.
    3. The result from step 2 is the calculated whole-of-income cap.
    4. Compare the calculated whole-of-income cap from step 3 and the ETP cap amount of $215,000 for 2020–21 (or the balance of ETP cap if a payment component has already applied to the ETP cap where there have been multiple payments for the same termination).
    5. If both caps are equal, use the whole-of-income cap. The smaller of the two caps at step 4 is the cap to apply to the ETP taxable component.
    Last modified: 13 Oct 2020QC 63806