Currently, employer termination payments (ETPs), such as golden handshakes, are taxed concessionally regardless of the individual’s income. An ETP offset is available for that portion of an individual’s ETP that is below a certain threshold.
For the 2011-12 year, this threshold is $165,000 and will be $175,000 for the 2012-13 year. This ETP offset reduces the effective tax on the relevant portion of the ETP to either 15% or 30% (plus Medicare levy) depending upon the individual’s age.
From 1 July 2012, the Government has announced that the ETP offset will be limited so that the ETP offset is only available where the individual’s total annual taxable income (including the ETP) is less than $180,000. Amounts above this ‘whole of income’ cap of $180,000 will be taxed at the individual’s marginal rate. The existing tax concessions which apply to genuine redundancy payments, invalidity payments, compensation due to an employment-related dispute and death will continue.