Generally, an employment termination payment is a payment:
- received by a person as a result of the termination of their employment, or as a result of the termination of the employment of a person who has died, and
- received no later than 12 months after that termination.
The following payments are not employment termination payments:
- payments for unused annual leave
- payments for unused long service leave, and
- the tax-free part of a genuine redundancy payment or an early retirement scheme payment.
A payment received more than 12 months after employment is terminated does not satisfy the definition of ‘employment termination payment’ for taxation purposes and is assessable income taxed at ordinary marginal rates. However, affected taxpayers can apply to the ATO in writing to have the payment treated as an employment termination payment.
The 12 month rule does not apply to the taxable component of genuine redundancy payments and early retirement scheme payments.