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Employers may choose to pay an ETP in parts. For payments made after the initial payment, if the payment is subject to a cap, the cap amount will be reduced by the previous payment or payments related to the same termination that counted towards this cap.
Example 9: ETP paid in parts
Craig retired from his job in a law firm in December 2015 and received a termination payment of $100,000 paid in two instalments - $50,000 in December 2015 and $50,000 in June 2016. At the time he retired, he had taxable income from wages of $95,000.
Craig's ETP falls into the non-excluded category and he will receive the lesser of the ETP cap or whole-of-income cap.
The whole-of-income cap ($180,000) is reduced to $85,000 (that is, $180,000 cap less $95,000 taxable income). The $85,000 will apply as it is lower than the ETP cap.
Craig's first payment of $50,000 will be less than the calculated whole-of-income cap of $85,000 and will be concessionally taxed.
For the second payment of $50,000, $35,000 will fall within the calculated whole-of-income cap ($85,000 less the $50,000 non-excluded termination payment received in December 2015). Only $35,000 of the second payment will be taxed at a concessional rate, the remaining $15,000 will be taxed at the highest marginal rate of 49%.
Source:
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Topic: 40910