|
Eligible Termination Payments (ETP) |
  
|
|
Eligible Termination Payments (ETP) |
|
TERMINATION PAYMENTS THAT ARE ELIGIBLE TERMINATION PAYMENTS
- Payments in lieu of notice
- Unused sick leave
- Payment of unused rostered days off
- Payments for compensation of loss of office or employment
- Compensation for wrongful dismissal (even when paid some time after the termination of employment)
- Contractual termination payments
- Golden handshakes
- Pay outs of long service leave where the employee is not yet entitled to that leave
- Components of a bona fide redundancy or approved early retirement that exceed the tax free component
- A payment made because of employee invalidity (but not including compensation for personal injury)
- Any of the above payments made after the death of an employee
TERMINATION PAYMENTS THAT ARE NOT ELIGIBLE TERMINATION PAYMENTS
- An employee's final pay (of salary, wages and / or allowances)
- Pay out of accrued annual leave
- Pay out of accrued long service leave
- A payment by way of loan or advance
- Capital payments in respect of a contract in restraint of trade (golden handcuffs)
- A single lump sum payment of a capital nature for personal injury
- The tax free component of a bona fide redundancy or approved early retirement scheme payment.
Note: An employee can elect to have all or part of their ETP 'rolled over'. This is where the employer places the ETP funds directly in an approved rollover fund. A rollover defers taxation of the ETP until it is withdrawn by the employee. The intention of the Government in establishing rollover funds was to encourage employees to preserve their superannuation retirement benefits until normal retiring age, usually 65.
THE PROCESS
- If the ETP amount exceeds $5000, complete section A of an ETP Pre-Payment Statement form and provide it to the employee to complete section B. If the employee does not complete section B or does not return the form before the indicated return date (give them about 30 days) then the entire amount cannot be rolled over. The ETP Pre-Payment statement is available by going to the 'Tax / Taxation (ATO) forms' menu at the top of the main screen of e-PayDay®.
- Process the ETP payments (in a termination payrun) as per the instructions on the ETP Pre-Payment Statement if provided and returned.
- Complete any forms necessary and give them to the employee.
PAYMENTS
For tax purposes eligible termination payments in e-PayDay® can be divided into the following components
Post-June 1994 Invalidity Component
A certain portion of the severence payment made to an employee terminated due to invalidity is considered as an ETP and has the name 'Post June 1994 Invalidity Component'. Refer to this link for the formula to work out the amount of this portion of the total payment.
Pre & Post 1 July 1983 Components
Apart from the invalidity component above, any amount of ETP that was not rolled over needs to be divided up into that amount attributable to before 01/07/1983 and that amount attribuatble after 30/06/1983.
A percentage of total service (employment) time before 01/07/1983 is worked out and then applied to the total ETP amount in accordance with the following formula
D multiplied by (G divided by H) where
D is the total ETP
G is the number of days from the date hired upto 01/07/1983
H is the number days from 01/07/1983 to date of termination
Once the portions are worked out, the pay rates to use in the pay envelope are below
Pre 1 July 1983 - This is not one of the default pay types in e-PayDay® and will need to be set up before commencing the termination payrun Screen Capture
Post 30 June 1983 - Pay Type No. 24 Screen Capture
Rolling Over the ETP
As mentioned above, if the ETP exceeds $5000 the employee is given the oportunity, via the ETP Pre-Payment statement, to elect to have all or a portion of their ETP "rollled over" into an approved rollover fund. If this is the case then a dedicated pay rate will have to be set up prior to the termination payrun and used in the pay envelope. This link provides a screen capture.
FORMS TO BE COMPLETED
All of the forms below are available by going to the 'Tax / Taxation (ATO) forms' menu at the top of the main screen of e-PayDay®.
ETP Pre-Payment Statement
If the ETP exceeds $5000 then section A of this form is to be completed and handed to the employee (to complete section B). If the employee does not complete section B or does not return the form before the indicated return date (give them about 30 days) then the entire amount cannot be rolled over. If completed and returned, this will indicate what amount the employee wishes to roll over.
ETP Payment Summary
This is to be completed if there is a portion of the ETP not rolled over. In most cases the ETP is not rolled over, which implies that usually the employer will have to fill out this form. It is to be handed to the employee upon termination and not at a later date.
ETP Rolled Over Statement
This form must be completed when the employee elects to rollover all or part of an ETP. The form must be prepared by the employer and sent to the nominated rollover institution. A copy of the form must also be given to the employee.
Reasonable Benefit Limits (RBL)
RBLs are the maximum retirement benefits a person may receive in their lifetime which are subject to concessional rates of tax. An employer must complete an RBL form when paying an ETP to an employee of $5000 or more that is not rolled over. The employer needs to forward the form to the ATO within 14 days of the end of the month in which the payment is made. Based on this information the ATO will issue the employee with a determination if any part of the payment is to be regarded as excessive. If the ETP amount is directly rolled over or the amount taken in "cash" is less than $5000, no RBL form is required.