19 April 2010

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


(last updated 27/03/2014)

Related posts:

Tax Rates on Assessable Redundancy Payments

A genuine redundancy payment is a payment you receive because the job you were doing is abolished. That is, your employer has made a decision that the job you are doing no longer exists and your employment is to be terminated.

A genuine redundancy has special tax treatment under the tax law where an amount paid up to a limit is tax free. If your redundancy does not meet the definition of genuine redundancy then it will be taxed under the normal employment termination payment rules.

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==> see tax rates below
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 2014 financial year, the Eligible Termination Payment cap amount is $180,000. 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%

See this post for details on Preservation Age.

E-tax Return

See these posts with tips, calculators and checklists to help you prepare your eTax Return (and get a better refund) with less hassle:
For help with your eTax return see our eTax Return Checklist.

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