1.1.E.105 Employment termination payment (ETP)

Definition

An ETP is generally part of a lump sum payment received when a person is:

• made redundant,
• dismissed,
• resigns, or
• retires or dies.

Types of ETP

An ETP includes:

• unused rostered days off,
• amounts in lieu of notice,
• a gratuity or 'golden handshake',
• an employee's invalidity (for permanent disability, other than compensation for personal injury), and
• certain other payments after the death of an employee.

Exemptions & exclusions from ETP

As defined in the Income Tax Assessment Act 1997, the following payments are not considered ETPs:

• a payment for unused annual leave or unused long service leave, or
• the tax-free part of a genuine redundancy payment or an early retirement scheme payment.

Example: The tax free amount of a genuine redundancy payment or an approved early retirement scheme payment could be 2 weeks pay or wages for each year of service.

Definition of genuine redundancy payment

A genuine redundancy payment is so much of a payment that:

• is received by an employee who is dismissed from employment because that employee's position is genuinely redundant, and
• exceeds the amount that would normally have been paid if a person left their work voluntarily.

Example: A person who resigns after 10 years employment could expect payment of:

• unused annual leave, and
• long service leave.

A person who is made redundant may receive payments beyond their leave payments, such as 2 weeks pay or wages for each year of service.

Note: More detailed information on ETPs can be found on the ATO website.

Policy Reference: SS Guide 4.3.4.30 Description: Employment Termination Payments & Roll-overs for the IMP

ETPs & the IMP

For some income support payments any ETP a person receives may be used in calculating the length of their IMP.

Act reference: SSAct section 14A Social security benefit liquid assets test definitions, section 1064 Module F Ordinary income for the purposes of DSP, section 1066A Module G Payments taken to be ordinary income (DSP), section 1067G Module H Income test (YA), section 1067L Module D Income test (Austudy), section 1068A Module E Ordinary income test (PPS), section 1068-G7 Lump sum payments arising from termination of employment (NSA, WA, PA, SA), section 1068-G7AQ Income test - Definitions (NSA, SA, PA, WA)

Policy Reference: SS Guide 4.3.4.10 Application of the Income Maintenance Period (IMP)

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Last reviewed: 11 February 2013