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How the Whole-of-income and ETP Caps Apply

The whole-of-income cap is reduced by your other income you earn in the income year, for example salary and wages or other income, see example 2 below to see how this works.

If the whole-of-income cap applies to your payment, your cap amount will be lesser of either the amount worked out under the whole-of-income cap or the ETP cap.

 

Example 2: Applying the whole-of-income cap

Percival is a 61 year old crane operator retiring from his job in December 2016. His taxable income from his wages in 2016-2017 up to that point is $100,000. His employer is paying him a termination payment (that is, an ETP) of $50,000 in the form of a gratuity.

Percival's ETP is a non-excluded ETP so the lesser of the two caps will apply.

Percival's whole-of-income cap is reduced from $180,000 to $80,000 because Percival had earned $100,000 in that income year.

As Percival's calculated whole-of-income cap of $80 000 is less than his ETP cap of $195,000, the calculated whole-of-income cap will be applied to his ETP.

As Percival's ETP ($50,000) is less than his calculated whole-of-income cap ($80,000), his entire ETP will be taxed at concessional (lower) tax rates.

Percival has reached his preservation age so his employer will withhold tax at a rate of 17% from his ETP.

Source:

https://www.ato.gov.au/individuals/working/in-detail/leaving-a-job/taxation-of-termination-payments/?anchor=Example2#Example2

Example 3: Applying the ETP cap

Jim is a 61 year old forklift operator who retired from his job on 1 July 2016. As he is retiring at the start of an income year he has not received any salary or wage income from his employer; however, his employer pays him a termination payment (that is, an ETP) of $50,000 in the form of a gratuity.

Jim's ETP is a non-excluded ETP and the lesser of the two caps will apply.

Jim's whole-of-income cap remains at $180,000 because he has no other income.

As Jim's whole-of- income cap ($180,000) is less than his calculated whole-of-income cap, the whole-of-income cap will apply to his ETP.

As Jim's ETP ($50,000) is less than the ETP cap ($195,000), his entire ETP will be taxed at concessional (lower) tax rates.

Jim has reached his preservation age so his employer will withhold tax at a rate of 17% from his ETP.

Note: If the whole-of-income cap applies to your ETP your cap will be the lesser of either the ETP cap or the amount worked out under the whole-of-income cap.

Source:

https://www.ato.gov.au/individuals/working/in-detail/leaving-a-job/taxation-of-termination-payments/?anchor=Example3#Example3

Topic: 40906