ETP Tax Calculator

An employment termination payment is a lump sum paid because your employment ended, generally within 12 months of the termination. It only has tax withheld from its taxable component. The ATO lists these as ETPs:

• payment in lieu of notice, unless it forms part of a genuine redundancy payment
• a gratuity or golden handshake
• unused sick leave and unused rostered days off
• compensation for loss of the job or wrongful dismissal
• an invalidity payment for permanent disability
• the part of a genuine redundancy or early retirement scheme payment above the tax-free limit
• certain payments made after the death of an employee.

These are not ETPs, even when they arrive in the same final pay:

• unused annual leave and long service leave, taxed under Schedule 7 (size them on the annual leave payout calculator)
• the tax-free part of a genuine redundancy, which is $13,598 plus $6,801 per complete year of service in 2026-27 (the redundancy payout calculator splits it out)
• super fund benefits and foreign termination payments.

Paid more than 12 months after the termination, a payment is a delayed termination payment rather than an ETP, unless the ATO approves it. It is withheld at a flat 32% with a TFN and reported as gross payments. The excess over the tax-free limit on a genuine redundancy stays an ETP however late it is paid.

The ETP cap moves each year in line with average weekly ordinary time earnings, rounded down to a $5,000 step, and the ATO usually publishes the new figure in February. The genuine redundancy tax-free limit is indexed the same way. Six years of both, from the ATO's own tables:

Preservation age is 60 for everyone born after 30 June 1964, and anyone born before that date has already reached it. The test is your age on 30 June 2027, not on the day you are paid. So someone who turns 60 in May 2027 gets 17% on an ETP paid the previous August.

47% is the top marginal rate of 45% plus the 2% Medicare levy. A foreign resident whose ETP is taxable in Australia has the 2% taken off each rate: 30% under preservation age, 15% at or over it, and 45% above the cap. With no TFN, the payer withholds 47% from the whole taxable component (45% for a foreign resident), ignoring cents. Everything else is rounded to the nearest dollar, with 50 cents rounding up.

For a non-excluded ETP, the concessional rate only covers whatever room is left under $180,000 once your other taxable income for the year is counted. Earn $180,000 in wages before the payment and there is no room at all: the whole ETP goes at 47%. Schedule 11 sets the steps out like this:

1. Add up every taxable payment made to you in the income year, leaving out the ETP.
2. Subtract that total from $180,000. The result is your whole-of-income cap.
3. Compare it with the $270,000 ETP cap, or what is left of it if an earlier payment for the same termination used some.
4. The smaller cap applies. If the two are equal, use the whole-of-income cap.

This is why timing matters. The same non-excluded ETP paid in July, with little salary behind it, usually fits under the cap. Paid in May after eleven months of a big salary, part of it can spill into the 47% slice. An excluded ETP never faces this test.

The label on your final payslip matters. A payment made because the job was abolished is excluded; the same dollars paid as a thank-you on resignation are a golden handshake and non-excluded. Your employer reports the code through Single Touch Payroll, and it shows on your income statement. Codes S and P are the same two types when an earlier payment for the same termination fell in a previous income year.

Pay in lieu of notice, severance pay and a gratuity are non-excluded on a resignation or dismissal. On a genuine redundancy, pay in lieu of notice can form part of the genuine redundancy payment instead (ATO ruling TR 2009/2, paragraph 64), so it counts towards the tax-free limit first and only the excess is an excluded ETP. The notice period calculator works out how many weeks of notice you are owed.

Alec shows the order the ATO insists on: the excluded part uses the ETP cap first, and only then is the non-excluded part tested against whatever is left of it and the whole-of-income cap. His $140,000 salary leaves $40,000 of room, which the gratuity fits inside.

The ATO taxes the taxable component at the same rates Schedule 11 withholds at: 17% or 32% up to the relevant cap, 47% above it. So for an excluded ETP, and for a non-excluded one where nothing changes after you leave, the amount withheld is normally the tax. The gap opens on a code O payment when your income for the year turns out higher than your employer knew.

The ATO's example is Percival, 51, who earned $100,000 and was paid an $8,000 ETP for unused RDOs in 2025-26. His employer used a whole-of-income cap of $80,000 and withheld $2,560. He then earned $75,000 in a new job, which cut his cap to $5,000. At assessment, $5,000 was taxed at 32% ($1,600) and $3,000 at 47% ($1,410), a total of $3,010. Less the $2,560 withheld, he owed $450.

If you expect more income after a non-excluded ETP, the ATO suggests asking your new employer to withhold extra from your wages. Put the new salary through the take-home pay calculator and compare it against the 2026-27 tax brackets.