If you are an employer
Depending on the type of ETP, the concessional tax treatment is limited to the smaller of either the ETP cap or the whole-of-income cap. Amounts paid in excess of these caps are taxed at the highest marginal rate.
To work out the amount to withhold from an ETP, refer to Tax table for employment termination payments (NAT 70980).
Payments for accrued leave on termination are taxed separately – for more information, refer to Tax table for unused leave payments on termination of employment (NAT 3351).
PAYG payment summary – employment termination payment
The PAYG payment summary – employment termination payment has ETP codes which are used to describe the type of payment, to ensure the correct rate of tax is applied.
You must use the PAYG payment summary – employment termination payment (NAT 70868) or an equivalent payment summary produced by your payroll software. for an ETP.
If the whole payment being made is a tax free genuine redundancy or early retirement scheme payment, it can be shown at lump sum D on the PAYG payment summary - individual non business.
Amending a payment summary
If you find a mistake with any amount or ETP code after giving the payment summary to your employee or us, you should complete a new payment summary, placing X in the box amending a payment summary.
If there is a change in circumstances and you have not issued the payment summary to your employee, or lodged your annual report, you can complete the payment summary according to the updated circumstances.
For example, if an employee retires from their position on a certain date, and that former employee subsequently dies, then the payment and payment summary should be completed as a death benefit ETP and be made to the dependant, non-dependant, or trustee, of the deceased estate.
To check if your payment is an ETP, see Payments that are ETPs.
These examples will help you to understand which cap applies to the ETP:
Example 1: Employment termination payment with an invalidity segment
Example 2: Applying the whole-of-income cap
Example 3: Applying the ETP cap
Example 4: Including taxable income in the whole-of-income cap
Example 5: Compensation for unfair dismissal
Example 6: Compensation for harassment and discrimination
Example 7: Genuine redundancy
Example 8: Not a genuine redundancy
Example 9: Genuine redundancy, tax-free component only
Example 10: ETP paid in instalments
Example 11: Multiple ETPs
Example 12: ETPs and tax losses
Example 13: Single ETP with excluded and non-excluded parts
Example 14: Single ETP with excluded (genuine redundancy) and non-excluded payments, and unused leave payments.
Fact sheets for your employees
The following documents help to explain how the ETP cap works and how the whole-of-income cap works. You can download one or both documents, depending on the type of ETP you are planning to make or have made, and provide them to your employees with your letter of offer or PAYG payment summary – employment termination payment:
Tax on your termination payment and the employment termination payment (ETP) cap
How the whole-of-income cap applies to your employment termination payment.