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Employment termination payments

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Eligible termination payments as they currently exist will be replaced by "employment" termination payments and superannuation benefits from 1 July 2007.

Employment termination payments (ETPs) are lump sum payments an employer makes as a consequence of terminating a person’s employment. These payments will be taxed differently from 1 July 2007, and can no longer be rolled over into super funds from this date unless they are made under specific transitional arrangements.

An ETP can include:

  • Amounts for unused rostered days off
  • Amounts in lieu of notice
  • A gratuity or ‘golden handshake’
  • An employee’s invalidity payment (for permanent disability, other than compensation for personal injury), and
  • Certain payments after the death of an employee.
  • ETPs do not include:
  • A payment for unused annual leave or unused long service leave, or
  • The tax-free part of a genuine redundancy payment or an early retirement scheme payment.

There are no changes to the tax treatment of unused leave, redundancy and early retirement payments.

Transitional arrangements

There are some transitional arrangements for people that have employment entitlements in place before 10 May 2006.

Payments made under these arrangements will attract tax concessions designed to broadly mirror existing arrangements, and can be rolled into superannuation.

For more information, please contact this office.

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