TaxBanter Oct Special Topic: Employment Termination Payments

The nature of a payment to an employee on termination of their employment will vary depending on the reason for termination. The reason for which the payment was received will determine whether it is a payment in consequence of the termination of employment, whether it is a genuine redundancy payment, a genuine invalidity payment or some other type of payment that receives concessional tax treatment, or is just taxed at the person’s marginal rate of tax.

Working out what a payment is actually for is a fundamental first step in working out its treatment for tax purposes — this is no less important for payments which are considered to be on termination of employment because some payments can be of a capital nature and therefore excluded from being an ETP.

This session will cover:

• in broad terms, some of the obligations under Fair Work legislation which an employer has when it terminates an employee’s employment
• the elements of the statutory definition of an ETP
• when a payment is made ‘in consequence of’ the termination of employment
• the limits to the concessional treatment of an ETP
• how life benefit termination payments and death benefit termination payments are taxed to the employee
• how genuine redundancy payments are concessionally taxed
• an employer’s Pay As You Go (PAYG) withholding and reporting obligations in respect of a termination payment
• an employer’s superannuation and payroll tax obligations in relation to termination payments.