Termination payments

Payroll tax

Termination payments include:

  • an Employment Termination Payment (ETP) declarable as income for the Australian Tax Office, including golden handshakes and similar payments

  • all paid out annual and long service leave no matter when it was accrued.

The amount of the ETP that is liable is the amount paid by you (whether paid to your employee or to a roll-over fund) less the income tax exempt component when received by your employee.

The following list outlines a summary of all liable and exempt termination payments:

Liable

  • Termination payments in respect of unused annual leave, sick leave, long service leave or a bonus or loading related to leave

  • Act of grace redundancy payments (golden handshakes) paid to employees after termination

  • Act of grace redundancy payments (golden handshakes) paid to directors and contractors

  • Payments in lieu of superannuation

  • Payments for notice period worked by employee or contractor

  • Payment in lieu of notice

  • Non-cash payment in satisfaction of an ETP Compensation for loss of job or wrongful dismissal – lost earnings component

  • Income taxable component of approved redundancy or early retirement scheme payments

Exempt

  • Genuine superannuation lump sum paid on retirement

  • Compensation for loss of job or wrongful dismissal – amount for personal injury, for example, damage to reputation

  • Income tax-exempt component of redundancy or early payments – as shown at lump sum D of the PAYG payment summary

  • Capital payment for contract in restraint of trade, for example, restriction on who the terminated employee can work for.

For more information, view Revenue ruling PTA 004 – Termination payments.

Last updated: 12 December 2013