What is an employment termination payment?
An employment termination payment is a lump sum paid on termination that receives concessional tax treatment, such as genuine redundancy payments and gratuities.
An employment termination payment (ETP) is a payment made to an employee because their employment has ended. ETPs can include severance pay, golden handshakes, gratuities, and compensation for loss of job. Certain payments like accrued annual leave, long service leave, and salary owed are NOT classified as ETPs — they are taxed separately.
ETPs receive concessional tax treatment up to certain caps. The whole-of-income cap and ETP cap limit the amount taxed at concessional rates. The tax treatment depends on whether the payment is a 'life benefit' (paid to a living person) or a 'death benefit', the employee's age, and whether the termination was due to genuine redundancy or early retirement.
Key facts
- •ETPs include severance, golden handshakes, and ex-gratia payments on termination
- •Accrued leave, salary owed, and superannuation lump sums are NOT ETPs
- •Concessional tax rates apply up to the ETP cap ($270,000 for 2026-27)
- •Genuine redundancy payments have a separate tax-free component based on years of service
- •Tax treatment varies based on the employee's age — different rules apply over or under preservation age
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Tax CalculatorFrequently asked questions
Is a genuine redundancy payment tax-free?
Part of it is. There is a tax-free amount based on years of completed service plus a base amount, updated annually by the ATO. Any amount above the tax-free limit is treated as an ETP with concessional tax rates up to the cap.
Does accrued annual leave form part of an ETP?
No. Accrued annual leave and long service leave are taxed separately under their own rules, not as part of an ETP.
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General information and estimates only — not legal, financial or tax advice. Always check your specific award, agreement or contract, or a qualified professional, before you rely on the result.