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Taxation of termination payments

How to calculate and report the tax on an ETP and other payments when an employee's employment is terminated.

Last updated 9 November 2023

Find out about taxation of termination payments to employees.

Find out why you may receive an employment termination payment (ETP), how it is taxed and which amounts to report.

Use the table below to work out which payments to include in the employee's ETP.

Find out how Lump sum payments for unused annual leave and long service leave are recorded.

Find out about genuine redundancy, early retirement scheme payments and reporting the tax-free amounts.

An ETP has a tax-free component if part of the payment relates to employment before 1 July 1983 and invalidity.

ETPs are concessionally taxed up to a certain limit, or 'cap'. The top rate of tax applies to amounts over the cap.

How to calculate and apply the whole-of-income cap amount to an ETP.

To receive concessional tax treatment, an ETP must generally be paid within 12 months of termination.