ETP paid in instalments
Employers may choose to pay an ETP in instalments. For payments made after the initial payment, if the payment is subject to a cap, the cap amount will be reduced by the previous payment or payments related to the same termination that counted towards this cap.
Example 10: ETP paid in instalments
Craig retired from his job in a law firm in December 2015 and received a termination payment of $100,000 paid in two instalments – $50,000 in December 2015, and $50,000 in June 2016. At the time he retired, he had taxable income from wages of $95,000.
Craig’s ETP was a non-excluded termination payment and is subject to the lesser of the ETP cap or whole-of-income cap.
His whole-of-income cap ($180,000) is reduced to $85,000 – that is, $180,000 minus $95,000 taxable income from wages – while his ETP cap is $195,000 (for 2015–16). The whole-of-income cap will apply because it is the lesser of the two caps.
Craig’s first payment of $50,000, received in December 2015, is less than the calculated whole-of-income cap of $85,000 and will be concessionally taxed. His whole-of-income cap is now further reduced to $35,000 – that is, $85,000 minus $50,000 termination payment.
For the second payment of $50,000, received in June 2016, only $35,000 falls within the calculated whole-of-income cap. Only $35,000 of the second payment is taxed at a concessional rate – the remaining $15,000 is taxed at the highest rate of 49%.
End of example