Major changes to ETP PAYG payment summary

ATOThe ATO has released the new PAYG payment summary for Employment Termination Payments (ETPs). We recommend you download the latest payment summary, as you now need to include reason codes on your ETP.

The ATO has introduced a new ‘whole-of-income cap’. Prior to 1st July 2012 the concessional treatment of an employment termination payment (ETP) included payments that are not related to genuine hardship e.g. ‘golden handshakes’.

Where the ETP received is not related to genuine hardship (i.e. genuine redundancy, invalidity compensation or death) the concessional tax treatment (and ETP offset) will only apply to that part of this payment that takes the total income of the recipient to $180,000, which is the income threshold where the top marginal rate commences.

The Budget proposes to limit such tax concessions by ensuring that, from 1 July 2012, they are only available to that part of an affected ETP that takes an individual’s total annual taxable income (including the ETP) to no more than $180,000. Amounts above this level will be taxed at marginal rates. This ‘whole-of-income cap’ will complement the existing ETP cap ($175,000 in 2012/13, indexed) which ensures that the concessional treatment only applies to amounts up to the ETP cap. This means that ETPs up to the ETP cap are taxed at a maximum rate of 15% for those over preservation age, and 30% for those under preservation age (plus the Medicare levy).

Existing arrangements (ETP cap $175,000 in 2012/13, indexed) will be retained for certain ETPs relating to genuine redundancy (including to those aged 65 and over), invalidity, compensation due to an employment-related dispute and death.

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