Change in concessional tax treatment
From 29 October 2019, the concessional tax treatment for genuine redundancy and early retirement scheme payments includes payments made to individuals who are 65 years old or older if they are dismissed or retire before they reach pension age.
These changes apply to payments made on or after 1 July 2019.
This change may affect your eligibility for tax-free limits and the amount of tax you pay on your termination payment if you were:
- born between 1 January 1954 and 30 June 1955, and 65 years old but under 66 years old (the pension age from 1 July 2019) at the time of your termination
- born between 1 July 1955 and 31 December 1956, and 65 years old but under 66 years and 6 months old (the pension age from 1 July 2021) at the time of your termination.
You don't need to do anything, but if you don’t you may pay more tax.
Work out if the change affects your payment
To work out if this change affects your payment you will need either your:
- PAYG payment summary – employment termination payment
- income statement.
Work out the amounts to include in your 2020 tax return, using the steps below:
- Were you born between 1 January 1954 and 30 June 1955 and were 65 years old, but under 66 years old (age pension age) at the time your employment was terminated?
No – you don't have to take any action. Use the pre-fill information in myTax or the information from your income statement or PAYG payment summary – employment termination payment to complete your tax return.
Yes – go to step 2. - Use this table below to work out if your payment is affected.
|
Payment type shown on your income statement or your PAYG payment summary – employment termination payment |
Effect of the change of age eligibility on your payment |
Action you need to take |
|---|---|---|
|
ETP – type code R |
Your employer has treated your payment as a genuine redundancy. |
No action required. |
|
Lump sum payment D |
Your employer has treated your payment as a genuine redundancy. |
No action required. |
|
ETP – type codes D, B, N and T |
The change will not apply to your payment |
|
|
ETP – type code S or P |
The change will not apply to your payment |
No action required. |
|
ETP – type code O |
Your payment may have been affected |
Did you receive a payment that meets all the requirements of a genuine redundancy payment except for the age test? Yes – go to step 3 No – No action required. |
Work out the tax-free limit and complete your 2019–20 tax return
The 2019–20 tax-free component of a genuine redundancy is $10,638, plus $5,320 for each complete year of service up to a maximum of $210,000.
- Work out your tax-free limit. You will need to know how long you worked for the employer who made the payment.
$10,638 + ($5,320 × years of service) = tax free limit
- Subtract the amount at step 3 (your tax-free component) from your ETP taxable component (shown on your income statement or PAYG payment summary – employment termination payment.)
Enter the amount at ETP tax-free component in your tax return and select the Employment Termination Payment Code R. - If your payment is more than your tax-free component (worked out in step 3) the remaining amount is shown at ETP taxable component in your tax return.
- If your income statement or PAYG payment summary – employment termination includes an Employer lump sum A payment of unused leave, change the type code to R in your tax return.
- Did you receive an amount for unused long service leave, or unused holiday pay that accrued after 17 August 1993 that was not described at step 6?
No – you don't have to take any further action.
Yes – go to step 8.
- Work out the amount of unused leave accrued after 17 August 1993 that you have been paid. This may be on your last payslip or you could ask your employer.
This payment will have been included in the gross payments on your income statement or PAYG payment summary – individuals non-business and needs to be taxed differently as result of the change in law. - Subtract from gross payments any amounts that you have determined to be payments for unused leave accrued after 17 August 1993 at step 8.
- Enter the amount from step 9 at:
- Q1 Salary and wages – on the paper return.
- Gross payments – in the 'Income statements and payment summaries' section if you are using myTax. If there is a pre-filled amount change it to the amount from step 9.
Don't change the tax withheld amount.
- Enter the unused leave accrued after 17 August 1993 amount at:
- Q3 Employer lump sum payments – on the paper return
- Lump sum A payments with a type code R – in the 'Income statements and payment summaries' section in myTax.
Example: work out payment amount after 29 October 2019
Jim was born on 31 January 1954 and was made redundant from XYZ Pty Ltd on 1 September 2019. Jim worked for XYZ Pty Ltd for 15 years and was paid $95,000 with an ETP – type code O which was an amount in excess of what he would have received had he resigned.
As Jim was over the age limit of 65 years old when he was dismissed, the redundancy was non-genuine. XYZ Pty Ltd applied the ETP cap to his payment and tax was withheld at 17%. Jim also received a lump sum A payment for unused leave of $5,400.
As a result of the changed age limits on 29 October 2019, Jim's payment now meets the requirements for a genuine redundancy payment and is tax free up to the limit based on his years of service.
Jim calculates his tax-free component as follows:
$10,638 + ($5,320 × 15) = $10,638 + $79,800 = $90,438
Jim's ETP taxable component on his income statement is $95,000. Jim subtracts his tax-free limit from his ETP taxable component:
$95,000 (ETP taxable component) − $90,438 (tax free component) = $4,562
Jim shows $4,562 at the taxable component and $90,438 at the tax-free component. Jim will select the Employment Termination code R.
Jim also needs to change his lump sum A type code for his unused leave from T to R.
End of example