An employment termination payment (ETP) is a payment given to an employee, or another person, as a result of the termination of the employee’s job. To be an ETP (and receive concessional tax treatment) the payment must usually be made within 12 months of termination. Payments made outside the 12-month period will be incorporated in your assessable income and will be taxed at your marginal tax rates. The 12-month rule does not affect to the taxable component of genuine redundancy payments and early retirement scheme payments.
It does not matter who pays you the ETP, provided it is rewarded to you as a result of the termination of your employment. Your employment is terminated when it ceases, regardless of the explanation. Reasons can include age retirement, resignation, dismissal, termination due to death, or redundancy. You cannot roll over your ETP to your super.
Exemptions from the 12-month rule
A payment received due to termination of employment, but rewarded more than 12 months after termination, can still be an service termination payment in some situation.
If you receive a termination payment more than 12 months after your employment was terminated, you can write to us and ask us to treat that payment as an employment termination payment. This also applies if you get an employment termination expense due to the death of another person.
Alternatively, we may make a legislative determination that the 12-month rule does not apply to a class of employment termination payments or a class of recipients of service termination payments.
Information to provide when you apply
You need to provide enough information for us to work out whether the 12-month rule should be waived for a termination payment you obtain.
You should include information about all of the following:
- the termination of the employment, including any dispute in relation to the termination
- the payment
- the person making the payment
- Any other relevant situation.