What is an ETP?
When you leave work or change jobs, you may receive several lump sum payments. The tax you pay on these lump sum amounts is different to the tax you pay on your normal income. One lump sum may be an employment termination payment (ETP).
Your ETP amount may include:
- payments for unused sick leave or unused rostered days off
- payments in lieu of notice
- a gratuity or 'golden handshake'
- an employee's invalidity payment for permanent disability
- compensation for loss of job or wrongful dismissal
- genuine redundancy payments or early retirement scheme payments that exceed the tax-free limit
- certain payments made after the death of an employee
- the market value of the transfer of property (less any consideration given for the transfer of this property).
If you receive an ETP from a person's employer because of the cessation of their employment due to their death, see Death benefit employment termination payments.
ETPs don't include:
- lump sum payments for unused annual or long service leave
- the tax-free part of a genuine redundancy payment or an early retirement scheme payment
- superannuation benefits (for example, a lump sum or income stream from a super fund)
- foreign termination payments.
You may also pay tax on these amounts at a concessional rate.
You will receive one or more end of year statements that show the amounts you receive and the tax withheld. Use this information to complete your income tax return.
Tax treatment of an ETP
You usually pay a lower rate of tax on ETPs, if you receive the payment within 12 months of your termination.
ETPs have up to 3 tax treatments:
- Tax-free, if part of the payment is for invalidity or work done before 1 July 1983.
- Concessionally taxed up to a certain limit, known as a cap.
- Taxed at the top marginal rate of 45% plus Medicare levy (2%) on the amount over the relevant cap.
The rate of tax you pay depends on the components of payment you receive, see How ETP components are taxed.
For an ETP you receive more than 12 months after termination of employment, find out how the 12-month rule affects the tax you pay on the ETP.
You can't roll over your ETP to your superannuation.
Tax on unused entitlements when you leave a job
The tax you pay on unused leave, termination of employment or redundancy payments may be different to the tax you pay on your normal income. The tax you pay depends on both:
- the reason for leaving the job
- any unused entitlements you may have accrued, such as long service leave or sick leave.
If you receive any lump sum payments from your employer for unused annual leave or long service leave, you may pay tax at a lower rate than your other income. These lump sum payments will appear at either 'Lump sum A' or 'Lump sum B' on your income statement or payment summary.