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ETPs
Eligible Termination Payments
| Question | Answer |
|---|---|
| What is the tax rate for a genuine redundancy payment received after 16 August 1983? | 30% up to $205,000 (2018/2019) and 45% thereafter (plus 2% Medicare in both cases) |
| What does ETP stand for? | Eligible Termination Payment |
| Is a payment for long service leave owing an ETP? | No |
| Is an employment termination payment necessarily an ETP? | No, some payments on termination of employment are not formally ETPs |
| Is the threshold (the ETP Cap Amount) at which the top marginal rate kicks in for an ETP fixed or indexed? | Indexed annually to Average Weekly Ordinary Time Earnings, rounded down to the nearest $5,000 |
| What are the common elements of employment termination payments relevant to this course? | Genuine redundancy payments, annual leave and long service leave entitlements, payments for sick leave |
| What are the two main types of ETP? | Life benefit termination payment; and death benefit termination payment |
| If an employer holds a life insurance policy over an employee, with the intention that the proceeds be paid to the employee's estate or beneficiaries in the event of their death, can the proceeds be treated as an ETP? | Yes, under certain circumstances |
| When will a death benefit be treated as an ETP in the hands of the recipient? | If the recipient is a "death benefits dependant" with respect to the deceased |
| How is a death benefit ETP taxed if it is paid to the trustee of an estate rather than to the ultimate beneficiary? | In exactly the same way as if it had been paid directly to the ultimate beneficiary |
| Who can be a death benefits dependant? | Spouse, former spouse, minor child of the deceased, adult dependeant, any other person who had a interdependency relationship before they died |
| What is the tax rate applied to the first $205,000 of the taxable portion of a death benefit termination payment made to a dependant of the deceased? | 0% |
| How much Medicare levy would be payable on the taxable portion of a death benefit termination payment to a dependant of the deceased of $305,000? | $2,000 (2% of $100,000) |
| What is the tax rate applied to the first $205,000 of the taxable portion of a death benefit termination payment made to a non-dependant of the deceased? | 30% plus 2% Medicare levy |
| If a death benefit termination payment of $305,000 is received by a dependant of the deceased, how much is included in assessable income? | $305,000. The concessional tax rates are achieved through the use of tax offsets, not through exclusion of amounts from assessable income |
| Is a payment for unused sick leave considered an ETP? | Yes |
| Is an employee share scheme payment considered an ETP? | No |
| Is a pension payment considered an ETP? | No |
| Is a payment for unused annual leave considered an ETP? | No |
| Is a non-genuine redundancy payment considered an ETP? | Yes |
| Who must approve an early retirement scheme, in writing, before its implementation? | The ATO |
| What is the formula to calculate the tax-free component of a genuine redundancy payment? | Base Limit + (Years of Service * Service Amount). |
| What is the Base Limit as of 2018-2019 for the formula to calculate the tax-free component of a genuine redundancy payment? | $10,399 |
| What is the Service Amount as of 2018-2019 for the formula to calculate the tax-free component of a genuine redundancy payment? | $5,200 |
| Is the tax-free component of a genuine redundancy payment considered an ETP? | No |
| Is the tax-free component of a genuine redundancy payment included in assessable income? | No |
| How will the Base Limit in the formula to calculate the tax-free component of a genuine redundancy payment change in future years? | The base limit and the amount per year of service are indexed annually by Full-Time Adult Average Weekly Ordinary Time Earnings |
| How will the Service Amount in the formula to calculate the tax-free component of a genuine redundancy payment change in future years? | The base limit and the amount per year of service are indexed annually by Full-Time Adult Average Weekly Ordinary Time Earnings |
| What is the tax-free component of a genuine redundancy payment paid to an employee over the age of 65? | A payment to an employee over the age of 65 cannot be a genuine redundancy payment under the ETP provisions |
| After taking out the tax-free component for a genuine redundancy payment, what are the other two categories of tax-free components for a life benefit termination payment? | Invalidity Segment and Pre-July 1983 Segment |
Created by:
frankhall
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