Death Benefit Employment Termination Payments

The concessional tax treatment of a death benefit Employment Termination Payment (ETP) depends on who it is paid to.

Payments to dependents of the deceased employee are more favorably treated than payments to non-dependents.

A ‘death benefits dependent’ is defined (Sec 302.195 ITAA 1997) as:

  • spouse of either gender, including de facto spouse
  • deceased person’s child under 18 years
  • any person with whom the deceased had an interdependency relationship just before the time of death
  • any other dependent just before the time of death

The taxable component of a death benefit ETP paid to a dependent is tax free up to the concessional ETP cap (see table below), and the remainder taxed at 45% (47% for the 3 years from 1 July 2014 to 30 June 2017) plus Medicare .

The taxable component of a death benefit ETP paid to a non-dependent is limited to 30% plus Medicare up to the concessional ETP cap, and the remainder taxed at 45% (47% for the 3 years from 1 July 2014 to 30 June 2017) plus Medicare .

ETP Concessional Caps
2018-19$205,000
2017-18$200,000
2016-17$195,000
2015-16$195,000
2014-15$185,000
2013-14$180,000
2012-13$175,000
2011-12$165,000
2010-11$160,000

 

The death benefit cap calculations for an individual are not affected by or counted towards their own lifetime concessional caps calculations.

Employment Termination Payment 12 month rule

An Employment Termination Payment must be paid within 12 months of termination to be eligible for concessional treatment. Without concessional treatment the payment is taxed as income at usual marginal rates.

There are a number exceptions to the 12 month rule and a Tax Commissioner discretion available which can be requested. See details and further links here.

Payg withhold rates (taxable component only)

See ETP payg withholding rates for the year ending 2018

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This page was last modified 2018-03-05