Termination payments

Termination payments generally constitute wages for payroll tax purposes.

These include:

  • A payment made in consequence of the retirement from, or termination of, any office or employment of an employee. This includes:
    1. unused annual leave and long service leave payments,
    2. employment termination payments within the meaning of section 82-130 of the Income Tax assessment Act 1997 (ITAA) that would be included in the assessable income of an employee under Part 2-40 of the ITAA,
    3. transitional termination payments within the meaning of section 82-10 of the Income tax (Transitional Provisions) Act 1997 and any payment that would be an employment termination payment but for the fact that it was received more than 12 months after termination.
  • Amounts paid or payable by a company as a consequence of terminating the services or office of a director.
  • Amounts paid or payable by a person taken to be an employer under the contractor provisions as a consequence of termination of the supply of services by a person taken to be an employee under those provisions.

Unused annual leave and long service leave

All unused (accrued) annual leave and long service leave, including a bonus, loading or other additional payment relating to that leave, paid to an employee upon termination of their services is subject to payroll tax.

Unused sick leave paid upon termination of employment forms part of an employment termination payment and is considered in the following section.

Employment termination payments

Employment termination payments may include:

  • payments for unused sick leave or rostered days off,
  • payments in lieu of notice,
  • ex gratia payments or 'golden handshakes',
  • an employee's invalidity payment (a permanent disability, other than compensation for personal injury), and
  • certain payments after the death of an employee.

Genuine redundancy payments and early retirement scheme payments

A payment arising from the termination of employment may constitute either a genuine redundancy payment under section 83-175 of the ITAA or an early retirement scheme payment under section 83-180 of the ITAA. Such payments are exempt from payroll tax to the extent that they are exempt from income tax.

Further references

Revenue Rulings:

GEN.001 - General

PTA-004 - Termination payments

Assistance

If you need further information on this topic, please contact our payroll tax enquiry service on 13 21 61.