Employment Termination Payments in Your Tax Return: What You Need to Know

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An Employment Termination Payment (ETP) is a lump sum you may receive when leaving a job. It can include payments in lieu of notice, golden handshakes, or compensation. ETPs are taxed differently to normal income, with concessional rates if paid within 12 months of termination. GoTax makes it simple to declare ETPs correctly and apply the right tax treatment.

What Is an Employment Termination Payment (ETP)?

An ETP is a lump sum paid when your employment ends. It can include:

• Payment in lieu of notice

• Unused sick leave or rostered days off

• Golden handshake or gratuity

• Compensation for wrongful dismissal or job loss

• Early retirement scheme payments (over the tax-free threshold)

• Payments made after the death of an employee

What’s Not an ETP?

Not everything paid at the end of employment counts as an ETP. Excluded items include:

• Unused annual leave or long service leave (taxed differently)

• The tax-free portion of genuine redundancy or early retirement

• Superannuation withdrawals

• Foreign termination payments

How Are ETPs Taxed?

ETPs are taxed at concessional rates that depend on timing and your age.

• If paid within 12 months of termination → concessional rates apply.

• If paid after 12 months → concessional rates are lost.

ETP Tax Rates (2023–24 cap: $235,000)

• Under preservation age: 32%

• At or above preservation age: 17%

• Above the cap: 47% (top marginal rate)

(The ETP cap is indexed annually.)

What Do You Declare in Your Tax Return?

Your employer must provide a PAYG payment summary – ETP. This summary shows:

• Taxable and tax-free components

• Tax withheld

You must declare this in the ETP section of your tax return.

Special ETP Scenarios

Death Benefit ETPs

• Dependants (spouse, child under 18, financially dependent) receive concessional rates.

• Non-dependants are taxed at the top rate.

Invalidity ETPs

• If you leave due to permanent disability, part of the payment may be tax-free.

What Records Should You Keep?

• PAYG payment summary – ETP

• Confirmation of termination and payment date

• Letters or contracts related to payout

Keep all records for five years.

FAQ – Real Questions, Real Fast

Q: I got a payout when I left my job. Is it an ETP?
A: Yes, if it’s for notice, sick leave, or a gratuity. Annual and long service leave are not ETPs.

Q: How much tax will I pay on an ETP?
A: It depends on your age, payment size, and the ETP cap. Under the cap, concessional rates apply. Over the cap, it’s taxed at 47%.

Q: What if my ETP is paid more than 12 months after I left?
A: Payments made after 12 months lose concessional rates and are taxed at higher rates.

Q: I got an ETP after a relative died. How is it taxed?
A: If you’re a dependant, concessional rates apply. Non-dependants pay tax at the top rate.

Q: Do I still declare my ETP if tax was withheld?
A: Yes. You must declare the figures from your ETP payment summary in your return.

Q: How do I know if my payout is an ETP?
A: Check your payment summary. If unsure, ask your employer or a tax professional.

Q: Are redundancy payments ETPs?
A: Only amounts above the tax-free redundancy threshold are treated as ETPs.

Q: Can part of an ETP be tax-free?
A: Yes. Invalidity ETPs and the tax-free redundancy portion may reduce your taxable ETP amount.

Q: Can I spread an ETP over multiple years?
A: No. An ETP is assessed in the year it is paid. It cannot be carried forward or split.

Q: Will the ATO pre-fill my ETP?
A: Often yes, but not always. Always check your payment summary against ATO pre-fill data.

Now You Know

ETPs are lump sums with their own set of rules and tax rates. Declaring them correctly ensures you get the concessional treatment you’re entitled to.

What Next?

GoTax takes the guesswork out of Employment Termination Payments. Enter the details from your summary and we’ll handle the tax treatment for you — fast, accurate, and stress-free.

Start your return now: www.gotax.com.au/guest-user

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