Things to know
Complete this section if you received an employment termination payment (ETP) due to the termination of your employment.
These payments are shown on an income statement or a PAYG payment summary – employment termination payment.
If you've lost, left or changed your job, you may be paid several lump sum payments and one may be an ETP. If you received an ETP, the components of the termination payment may be taxed differently.
Types of ETPs
ETPs include:
- a gratuity or golden handshake
- genuine redundancy or early retirement scheme payments above the tax-free limit
- severance pay
- non-genuine redundancy payments
- payments in lieu of notice of termination
- unused rostered days off (RDOs)
- unused sick leave
- compensation for loss of job
- compensation for wrongful dismissal, if you received payment within 12 months of the actual termination of employment
- payments for loss of future super payments
- payments arising from an employee's termination because of ill health (invalidity), other than compensation for personal injury
- lump sum payments after the death of an employee.
Other types of ETPs include:
- death benefit ETPs: these are payments you received due to another person's death and their employment ending
- foreign ETPs: these are ETPs you received due to the termination of your overseas employment while an Australian resident, and were exempt from income tax under that country's law
- late termination payments: these are certain ETPs you received more than 12 months after you retired or ceased employment.
Don’t show at this section
You don't need to show the following payments anywhere in your tax return:
- foreign termination payments: these are certain termination payments that weren't exempt from income tax of the foreign country
- ETPs you received as the trustee of a deceased estate (ETP code T); you must show these payments in the trust tax return of the deceased estate
- departing Australia superannuation payments.
Completing this section
You'll need your income statement or PAYG payment summary – employment termination payment.
If you can't find or think there is an issue with your income statement or payment summaries data, contact your employer or payer. For more information, see Access your income statement.
If you've received a foreign ETP, your foreign employer may not give you an income statement or PAYG payment summary – employment termination payment. You'll need to convert your foreign ETPs into Australian dollars before you can complete this section. You can use the Foreign income conversion calculatorThis link opens in a new window or go to Foreign exchange rates.
We pre-fill your tax return with ETP information provided to us. Check them and add any ETP's you received that haven't pre-filled.
To personalise your tax return to show ETP's, at Personalise return select:
- You received salary, wages or other income on an income statement/payment summary, Australian Government payments, or First home super saver (FHSS) scheme payment
- Employment termination payments (ETP)
To show your ETP's, at Prepare return select 'Add/Edit' at the Income statements and payment summaries banner.
At the Employment termination payments (ETP) banner:
- For each ETP that hasn't pre-filled in your tax return, or each foreign ETP, select Add.
- Answer the question Is this an Australian ETP?
- Enter information from your income statement or PAYG payment summary – employment termination payment into the corresponding fields.
If you indicated this is not an Australian ETP, you will need to select Country employed in. - Select the Employment termination payment code, find it on your income statement or PAYG payment summary – employment termination payment. If your income statement or payment summary doesn't have a code, contact the employer or payer. If you're unable to contact the employer or payer, select the code that best describes your payment using the ETP code descriptions below.
- Select Save.
- Select Save and continue when you have finished the Income statements and payment summaries section.
ETP code descriptions
|
Code |
Description |
|---|---|
|
R |
If your ETP was received because of:
|
|
O |
If your ETP isn't described by code R – for example, you received it because of a:
|
|
S |
If you received a code R ETP in 2024–25 and you had received another ETP (code R or code O), or a transitional termination payment, in an earlier income year for the same termination of employment. |
|
P |
If you received a code O ETP in 2024–25 and you had received another ETP (code R or code O), or a transitional termination payment, in an earlier income year for the same termination of employment. |
|
D |
If you received a death benefit ETP in 2024–25 and you were a death benefits dependant. |
|
B |
If you received a death benefit ETP in 2024–25 and you were not a death benefits dependant, and you had received another death benefit ETP in an earlier income year for the same termination of employment. |
|
N |
If you received a death benefit ETP and you were not a death benefits dependant, and code B does not apply. |
Glossary
Death benefit ETPs
A death benefit ETP is a lump sum payment which is paid to you by another person's employer after the death of that person.
If the ETP is paid to you directly, you should receive an income statement or PAYG payment summary – employment termination payment from the deceased's former employer.
If the ETP was paid to you as the trustee of a deceased estate, you must show the ETP in the tax return of the deceased estate, not in your personal tax return.
The ETP may have a tax-free and a taxable component.
The tax treatment of the taxable component and how it shows on your income statement or payment summary depends on whether:
- you're a death benefits dependant of the deceased
- the payment exceeds the ETP cap of $245,000.
Payment to a death benefits dependant
Only the amount above the ETP cap of $245,000 will be shown as the taxable component on the income statement or payment summary. You must show this as the taxable component when completing the ETP section.
Payment to a non-dependant
The entire taxable component will be shown on the income statement or payment summary and you must show this as the taxable component when completing the ETP section.
Death benefits dependant
You're a death benefits dependant of the deceased if, at the time they died, you were:
- the surviving spouse
- a former spouse
- a child of the deceased and you were under 18 years old
- any other person who was financially dependent on the deceased
- any other person in an Interdependency relationship with the deceased.
If you disagree with the dependency status shown on your income statement or payment summary, you should discuss it with the payer.
For the purposes of the definition of death benefits dependant the following apply:
Spouse of the deceased includes another person:
- with whom the deceased was in a relationship that was registered under a prescribed law of a state or territory
- not legally married to the deceased person, who lived with the deceased on a genuine domestic basis in a relationship as a couple.
Child of the deceased includes:
- an adopted child, stepchild or ex-nuptial child of the deceased
- a child of the deceased's spouse
- someone who is a child of the deceased within the meaning of the Family Law Act 1975 (for example, a child who is a child of a person under a state or territory court order giving effect to a surrogacy agreement).
Interdependency relationship
An interdependency relationship exists if there is a close personal relationship between 2 persons and both the following conditions are met:
- they live together
- one or each of them provides the other with financial support, domestic support and personal care.
An interdependency relationship can also exist if there is a close personal relationship between 2 persons but one or more of the conditions stated above aren't satisfied because of the physical, intellectual or psychiatric disability of one of the people.
However, 2 persons don't have an interdependency relationship if one of them provides domestic support and personal care to the other:
- under an employment contract or a contract for service, or
- on behalf of another person or organisation such as a government agency, a body corporate or a benevolent or charitable organisation.
Foreign ETPs
An ETP that you received due to termination of your employment overseas is a foreign employment termination payment (foreign ETP):
- where you were an Australian resident for the period of your employment
- where the payment was exempt from income tax under that country's laws, and
- whether or not your foreign employer has an Australian business number (ABN) or has given you an income statement or PAYG payment summary – employment termination payment.
A foreign ETP is different from a foreign termination payment.
You need to convert your foreign ETPs into Australian dollars before you can complete this section. You can use the Foreign income conversion calculatorThis link opens in a new window or go to Foreign exchange rates.
Late termination payment
A late termination payment is a lump sum payment, similar to ETPs, which you received more than 12 months after the time you retired or ceased employment.
Generally late termination payments don't receive concessional tax treatment, and the amount should be included at Salary, wages, allowances, tips, bonuses. However, a late termination payment can be treated as an ETP and receive concessional tax treatment where either of the following apply:
- legal action about your entitlement to the ETP or about the amount of the ETP was commenced within 12 months of the termination of your employment
- the payment was made by a person who was appointed within 12 months of your employment termination as a liquidator, receiver or trustee in bankruptcy for the employer
- the payment was due to a person's membership in a redundancy trust and the application for payment was made within 12 months of becoming entitled to the payment under the rules of the trust. The trustee of the redundancy trust must make the payment as soon as practicable after receiving the application and within 2 years of the termination of the employment that led to the entitlement.
For more information see ETP 2018/1 Income Tax Employment Termination Payments (12 month rule) Determination 2018 and ETP 2019/1 Income Tax: Employment Termination Payments Redundancy Trusts (12 month rule) Determination 2019.
Foreign termination payment
An FTP is a payment that:
- you received in consequence of the termination of your employment in a foreign country and the payment relates only to a period of employment when you were a foreign resident, or
- wasn't exempt from income tax in the foreign country, you were an Australian resident during the period of the employment or service, and you received the payment as a result of the termination of either your
- employment in a foreign country where the foreign earnings were exempt from Australian tax for the period of employment
- qualifying service on an approved project and the eligible foreign remuneration was exempt from Australian tax during the period of engagement.
The payment isn't an FTP if it is a superannuation benefit paid from a superannuation fund, retirement savings account or an approved deposit fund or if it is a payment of a pension or an annuity.
Foreign termination payments are non-assessable non-exempt income, that is, tax-free income. Don't show them anywhere in your tax return.