Employment termination payments (ETP) are liable for payroll tax. The liable amount of an ETP is the amount you paid minus the income tax exempt component. Liable termination payments include:
- payments relating to unused annual leave, sick leave, long service leave, or a bonus or leave loading
- act of grace redundancy payments (golden handshakes) paid to employees after termination
- act of grace redundancy payments paid to directors and contractors
- payments instead of superannuation
- payments for notice period worked
- payment instead of notice
- income taxable component of approved redundancy or early retirement scheme payments.
Exempt payments include:
- genuine superannuation lump sum paid on retirement
- compensation for loss of job or wrongful dismissal
- income tax-exempt component of redundancy or early payments shown as lump sum D in the PAYG payment summary
- capital payment for restraint of trade – for example, a restriction on who the terminated employee can work for.
For more information, read Revenue Ruling PTA 004 and our common errors page.
An example of liable and exempt termination payments
A director is made redundant. They receive:
- a $75,000 golden handshake
- $25,000 annual leave and other leave entitlements
- $10,000 in income tax exempt redundancy payments – shown as lump sum D on the PAYG payment summary.
The $75,000 golden handshake and $25,000 in leave entitlements, totaling $100,000, must be included as termination payments in the payroll tax return.
Payroll tax assist
Use payroll tax assist to help you meet your payroll tax obligations. It'll show you what wages are taxable.