Termination payment tax calculator: tax on an ETP
A payment made because your job ended is taxed at a concessional rate, up to a cap that depends on your other income. Enter the payment, your income and your age.
An employment termination payment, or ETP, is a lump sum paid as a consequence of employment ending, such as payment in lieu of notice, a golden handshake or a settlement for loss of the job. Its taxable component is taxed at 32% for people under preservation age and 17% from age 60, both including the Medicare levy, up to a cap, and at 47% above it. For 2026–27 the ETP cap is $270,000. Payments that are not a genuine redundancy are also subject to the whole-of-income cap of $180,000, reduced by the other taxable income received in the year, and the lower cap applies. A 45-year-old who earned $90,000 during the year and receives $40,000 has a cap of $90,000, pays $12,800 and keeps $27,200.
Tax on a termination payment
You keep
$27,200
| Tax withheld | $12,800 |
| Taxed at the concessional rate | $40,000 |
| Taxed at 47 % | $0 |
| Your cap this year | $90,000 |
Updated on · Radif Partners · Editorial policy
Tax on a termination payment: examples
| Payment | Other income this year | Age | Cap that applies | Tax | You keep |
|---|---|---|---|---|---|
| $20,000 | $60,000 | 45 | $120,000 | $6,400 | $13,600 |
| $40,000 | $90,000 | 45 | $90,000 | $12,800 | $27,200 |
| $40,000 | $90,000 | 61 | $90,000 | $6,800 | $33,200 |
| $60,000 | $150,000 | 45 | $30,000 | $23,700 | $36,300 |
| $100,000 | $170,000 | 45 | $10,000 | $45,500 | $54,500 |
| $300,000 | $0 | 45 | $180,000 | $114,000 | $186,000 |
The third row differs from the second only by age: having reached preservation age, the same payment is taxed at 17%. The fourth and fifth rows show the whole-of-income cap biting: with $170,000 already earned, only $10,000 of the payment gets the concessional rate.
Two caps, and which payments use which
The ETP cap of $270,000 is indexed each year. It applies on its own to excluded payments: the taxable part of a genuine redundancy or early retirement scheme payment, invalidity payments and compensation for personal injury, unfair dismissal, harassment or discrimination. Every other ETP, including a golden handshake, a gratuity, payment in lieu of notice outside a redundancy and unused sick leave, is a non-excluded payment and is tested against the smaller of the ETP cap and the whole-of-income cap. The whole-of-income cap is fixed at $180,000 and is not indexed, so it catches more people each year.
Where a person receives both kinds in one year, the excluded payments are counted first, and they use up the ETP cap available to the rest.
What reduces the taxable component
Part of an ETP can be tax-free: the invalidity segment, where the employment ended because of ill health before the last retirement day, and the pre-July 1983 segment for service before that date. On a genuine redundancy there is in addition the tax-free amount based on years of service, $13,598 plus $6,801 for each completed year in 2026–27, set out in the redundancy tax-free limit guide. What remains after those amounts is the taxable component, and it is this figure the rates and caps apply to.
How the employer withholds
The employer applies Schedule 11 at the time of payment and reports the ETP on a separate payment summary or through Single Touch Payroll with a code, R, O, S or P among others, that tells the ATO which cap applies. To apply the whole-of-income cap correctly the employer adds the other taxable payments it has made to you in the year, including salary and leave payouts. It does not know about income from other sources, such as a second job or investments, so the withholding can be too low, and the balance is then payable when you lodge your return.
ETP tax in your return
The concessional rates work through a tax offset: the ETP is included in taxable income, and an offset limits the tax on the amount within the cap to the maximum rate. Because the payment is part of taxable income, it can affect income-tested items such as the Medicare levy surcharge, HELP repayments, private health insurance rebate tiers and family payments. A large ETP in a year of otherwise normal income is the typical cause of an unexpected HELP repayment.
Timing choices that change the tax
Since the whole-of-income cap counts other income of the same financial year, the date of payment matters. A non-excluded payment made in early July, when little other income has been earned in the new year, keeps far more of the cap than the same payment in June. Reaching preservation age before the payment is made lowers the rate from 32% to 17%; the test is your age on the last day of the income year in which the payment is made. Employers are not obliged to accommodate either, but in a negotiated exit the payment date is a term like any other.
What is not an ETP
Unused annual leave and long service leave are taxed under their own rules, at marginal rates or at a flat 32% on a genuine redundancy. Salary, wages and bonuses for work already done are ordinary income even when paid on the last day. Superannuation benefits are taxed under the super rules. A payment that would have been made regardless of the termination is not an ETP. The final pay calculator separates these components and applies the right method to each.