ato logo
Search Suggestion:

The 12-month rule

What the 12-month rule for employment termination payments is and when it applies.

Last updated 10 June 2024

What is the 12-month rule

To receive concessional tax treatment an employment termination payment (ETP) must generally be paid within 12 months of termination.

You include payments outside the 12-month period in your assessable income and pay tax at your marginal tax rates.

The 12-month rule doesn't apply to the taxable component of genuine redundancy payments and early retirement scheme payments.

A payment that is made more than 12 months after termination can still be an ETP in the following circumstances:

Payments covered by a legislative determination

Check whether we've made a legislative determination that applies to your circumstances.

We have made legislative determinations that a termination payment received more than 12 months after termination of employment is to be treated as an ETP in any of the following circumstances:

  • the delay is due to legal action that began within 12 months of the termination, provided the legal action concerned the entitlement to the payment or the amount of the entitlement
  • the payment is made by a liquidator, receiver or trustee in bankruptcy of an entity that was otherwise liable to make the payment and the date of appointment of the liquidator, receiver or trustee is no later than 12 months after the termination of employment
  • a payment is received from a redundancy trust in some cases.

For more on the tax determinations, see:

  • ETP 2019/1 Income Tax: Employment Termination Payments Redundancy Trusts (12-month rule) Determination 2019 Income
  • ETP 2018/1 Income Tax Employment Termination Payments (12-month rule) Determination 2018

An exemption is granted

If you receive a termination payment more than 12 months after your employment was terminated, you can write to us and ask us to treat that payment as an ETP. This also applies if you receive an ETP due to the death of another person.

You need to provide enough information for us to work out whether the 12-month rule should be waived for a termination payment you receive.

You should include information about all of the following:

  • the termination of the employment, including any dispute in relation to the termination
  • the payment
  • the person making the payment
  • any other relevant circumstances.

To apply for an extension of time, you need to write to us and include all the relevant information (as above). There is no specific form to use.

Send your completed request to:

Australian Taxation Office
PO Box 3100