Tax Rates on Excessive Tax Free Redundancy Payments (Eligible Termination Payment)

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A genuine redundancy payment is made up of two components:

1. a tax free amount and ==> see our post Redundancy Payment Calculator
2. an assessable amount

After any tax-free component has been deducted, the balance of the Eligible Termination Payment (ETP) (assessable amount) is taxed at a concessional rate up to a limit called the ETP cap amount.

Tax on Excessive Redundancy Payment (ETP):
For the 2009 financial year, the Eligible Termination Payment cap amount is $145,000. This amount is indexed annually.

Calculating the amount to be withheld from an excessive Redundancy payment (ETP)

Once you have deducted any tax-free component from the total ETP, the remainder is the taxable component. The amount you need to withhold from the taxable component depends on the age of your employee at the end of the income year.

Under 55 Up to the ETP cap amount - 31.5%
55 and over Up to the ETP cap amount 16.5%
All employees Over the ETP cap amount 46.5%

For further information see this FREE fact sheet on taxation of reduancy payment.