Payments made relating to services rendered to the date of retirement or termination include:
- payouts of accrued annual and long service leave
- employment termination payments (ETPs)
- a payment that would be an ETP but for the fact it may be paid later than 12 months after termination occurred.
Typical payments that fall within the definition of an ETP include:
- payments in lieu of notice
- a gratuity or golden handshake
- compensation for the loss of a job/wrongful dismissal
- unused rostered days off
- unused sick leave
- invalidity payments for a permanent disability (other than compensation for personal injury)
- bona fide redundancy and approved early retirement scheme payments in excess of a tax free amount (the tax free amount is indexed annually)
- certain payments following the death of an employee.
The amount of an ETP that is liable to payroll tax is the amount that would be assessable income for income tax purposes of the employee.
In some cases a termination payment is not directly paid to the employee, for example, paid into a superannuation fund. However, it still remains liable for payroll tax as a termination payment.
Payments relating to the termination of services or office of a director are also liable.
Revenue Ruling PTA 004 ‘Termination Payments’ clarifies those termination payments that are exempt from payroll tax. Payroll tax exemptions apply to invalidity payments and Genuine Redundancy Payments (previously known as Bona Fide Redundancy) and Early Retirement Scheme Payments (previously known as Approved Early Retirement Scheme Payments), but only to the extent that they are exempt from income tax.
