An employment termination payment (ETP) is a payment given to an employee, or another person, as a result of the termination of the employee’s job. To be an ETP (and receive concessional tax treatment) the payment must generally be made within 12 months of termination. Payments made outside the 12-month period will be included in your assessable income and will be taxed at your marginal tax rates. The 12-month rule does not apply to the taxable component of genuine redundancy payments and early retirement scheme payments.
It does not matter who pays you the ETP, provided it is paid to you as a result of the termination of your employment.
Your employment is terminated when it ceases, regardless of the reason. Reasons can include age retirement, resignation, dismissal, termination due to death, or redundancy.
For information on the meaning of 'as a result of the termination of your employment' – Taxation Ruling TR 2003/13
You cannot roll over your ETP to your super.
The concessional tax treatment of ETPs is limited by two different caps.
Exemptions from the 12-month rule
A payment received due to termination of employment, but paid more than 12 months after termination, can still be an employment termination payment in some circumstances.
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 employment termination payment. This also applies if you receive an employment termination payment due to the death of another person.
Alternatively, we may make a legislative determination that the 12-month rule does not apply to a class of employment termination payments or a class of recipients of employment termination payments.
For more information, see Payments covered by a legislative determination.
Information to provide when you apply
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.
How to apply
To apply for an extension of time, you need to complete a written application and include all the relevant information. Note: there is no specific form to use.
Send your completed application to:
Australian Taxation Office
PO Box 3100
PENRITH NSW 2740
Payments covered by a legislative determination
So far, we have made legislative determinations that a termination payment, received more than 12 months after termination of employment, is to be treated as an employment termination payment in any of the following circumstances:
- if the delay is due to the commencement of legal action within 12 months of the termination of employment, if the legal action concerned the entitlement to the payment or the amount of the entitlement
- if 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
- if a payment is received from a redundancy trust in some cases.
Refer to the determination below for more information.
Employment Termination Payments (12 month rule) Determination 2007
Employment Termination Payments Redundancy Trusts (12 month rule) Determination 2009External Link.