Payment

Amount

Redundancy pay

$40,000.00

Unused sick leave

$6,924.80

Unused annual leave

$10,865.76

Unused long service leave

$10,966.15

Gratuity

$100,000.00

Step

Action

Result

1

Calculate genuine redundancy payment

The redundancy payment:
$40,000

$40,000

2

Calculate tax-free limit on genuine redundancy payment

The tax-free amount in 2016/2017 is $9,936 + $4,969 for each completed year of service. Brent has 6 years of completed service:
$9,936 + (6 x $4,969)

$39,750

3

Calculate taxable component of genuine redundancy payment

This is the genuine redundancy payment from step 1 less the tax-free limit amount from step 2:
$40,000 - $39,750

$250

ETP code R

Under ETP cap so taxed at 32%

4

Calculate tax on taxable component of genuine redundancy payment

ETP cap for 2016/2017 = $195,000

Taxable component of genuine redundancy payment = $250

Under ETP cap so taxed at 32%

$80.00

5

Calculate the remaining ETP Cap

This amount is the ETP cap ($195,000 for 2016/2017 less the taxable component of the excluded ETP (from step 3):
$195,000 - $250

$194,750

6

Calculate non-excluded payment

The non-excluded payment is the gratuity + sick leave:
$100,000.00 + $6,924.80

$106,924.80

ETP code O

7

Calculate the whole-of-income cap

Whole-of-income cap ($180,000) less other taxable income:
$180,000 - $74,998 (salary and wages) = $105,002

The cap is further reduced by the taxable payments for unused annual and long service leave:
$105,002 - ($10,865.76 + $10,966.15) = $83,170

The whole-of-income cap is not reduced by the excluded part of the termination payment in this case because it was received at the same time as the non-excluded payment – that is, it was not received earlier in the income year.

$83,170

(Calculated whole-of-income cap)

8

Determine which cap is lower

Brent will receive the lower of the remaining ETP cap or the whole-of-income cap:

Remaining ETP cap (from step 5) = $183,620

Calculated whole-of-income cap (from step 7) = $83,170

The whole-of-income cap will apply to Brent's non-excluded payments because the cap is lower than the remaining ETP cap.

$83,170

(Calculated whole-of-income cap is the lower cap)

9

Apply calculated whole-of-income cap to non-excluded payment

Non-excluded ETP less calculated whole-of-income cap:
$106,924.80 - $83,170 = $23,754.80

$83,170 of the total non-excluded ETP is below the whole-of-income cap and will be taxed at 32%:
$26,614.40

The remaining $23,754.80 is above the whole-of-income cap and will be taxed at the highest marginal rate (47%):
$11,164.76

$37,779.16

(Total tax withheld for ETP)