• Redundancy Payments
• Invalidity Lump Sums
• Early Retirement Scheme Lump Sums
• Long Service Leave Lump Sums
• Annual Leave Lump Sums
• Annual Leave Loading Lump Sums
• Unfair Dismissal Lump Sums
• Harassment Discrimination Lump Sums

REDUNDANCY INVALIDITY AND EARLY RETIREMENT LUMP SUMS

Genuine redundancy and early retirement scheme payments are tax free up to a limit based on the employee's years of service.

The tax-free amount is not part of the employee's Eligible Termination Payment (ETP).

It's reported as a lump sum in the employee's "PAYG payment summary - individual non-business." Any amount over the tax-free limit is part of the employee's ETP.

Working out and reporting the tax-free amount

The tax-free limit is: Base amount + (service amount ž years of service)

The base amount and service amount are indexed annually.

		Base Amount	Service Amount
2017-2018	$		$
2018-2019	$10,399		$5,200

Example

For 10 years service, the tax-free limit for the year ending 30 June 2019 is:

$10,399 + ($5,200 ž 10) = $10,399 + $52,000 = $62,399

Source ATO Web Page

ANNUAL AND LONG SERVICE LEAVE LUMP SUMS

Lump sum payments for unused annual leave and long service leave are not part of the employee's ETP. They are separately recorded on the employee's PAYG payment summary - individual non-business at lump sum A or B.

These payments may be concessionally taxed. The tax rate depends on the type of termination, date of accrual and type of leave.

Long Service Leave
Component	Normal Termination	   Redundancy/Invalidity/Early Retire
Pre Aug 1978	5% taxed at marginal rates 5% taxed at marginal rates
Aug 1978-1993	32% tax                    32% tax                 
Aug 1993-	Taxed at marginal rates	   32% tax

Annual Leave
Component	Normal Termination	   Redundancy/Invalidity/Early Retire
Pre Aug 1993	32% tax			   32% tax
Aug 1993-	Taxed at marginal rates	   32% tax

Annual Leave Loading
Component	Normal Termination	   Redundancy/Invalidity/Early Retire
Pre Aug 1993	32% tax			   32% tax
Aug 1993-	Taxed at marginal rates	   32% tax

Source ATO Web Page
Source ATO Web Page

UNFAIR DISMISSAL LUMP SUMS

Payments that are made principally to compensate a person for a genuine dispute from unfair dismissal, harassment or discrimination are excluded from the whole-of-income cap.

The ETP cap amount of $205,000 for 2018-19

A payment does not need to be made as a result of proceedings before a court to be deemed as compensation - however, the employee or employer should keep evidence to show that a genuine dispute existed.

Example: Compensation for unfair dismissal

Julie's employment was terminated by her employer. Julie has evidence that she was unfairly dismissed because of her strong union affiliation and disputes her termination by engaging a lawyer to act on her behalf.

The lawyer negotiates a $20,000 out-of-court settlement with Julie's employer for unfair dismissal.

Although Julie's complaint did not go to court, there was a genuine dispute between Julie and her employer that resulted in compensation for her unfair dismissal. Her payment of $20,000 is a compensation payment and will be subject to the ETP cap and excluded from the calculation of the whole-of-income cap.

Example: Compensation for harassment and discrimination

Monica's employment was terminated in September 2018 because of alleged poor work performance. Monica feels that she was unfairly dismissed, believing that her dismissal was actually as a result of a harassment claim she lodged against her manager. She takes court action against her employer and receives a payment of $150,000. Monica has other taxable income of $100,000.

Because the payment is a result of the termination of her employment and made to compensate her for harassment and discrimination, it is subject to the ETP cap (that is, $205,000 for 2018-19) and excluded from the whole-of-income cap. Therefore the entire $150,000 of her payment will receive confessional tax treatment regardless of her other income.