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 (ETPs) & 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)

Last reviewed: 1 July 2019