Employment termination payment (ETP)

What counts as an ETP, and what does not

In scope: payment in lieu of notice, the taxable slice of a genuine redundancy payment above the tax-free threshold, unused rostered days off, and ex gratia or settlement payments connected to the termination. Out of scope, and taxed under their own rules: unused annual leave and long service leave payouts, and the tax-free component of a genuine redundancy. Getting the buckets right is what payroll gets audited on.

How is an ETP taxed?

Concessionally, up to the ETP cap, with the rate depending on the employee's age relative to preservation age; amounts above the cap are taxed at the top marginal rate. Genuine redundancy payments first apply a separate tax-free threshold built from a base amount plus an amount per completed year of service, and only the excess becomes an ETP. All of these figures are indexed annually, so the current ATO thresholds are the reference, not last year's.

The 12-month rule

An ETP must generally be paid within 12 months of the termination to keep concessional treatment. Instalment settlements and delayed payments that drift past the line can lose the concession, which is an expensive drafting oversight in a deed of release.