Yesterday we had a question from a client in relation to how to report a lump sum that was paid on termination. This termination was not a redundancy, Lump sums can be paid on termination as a thank you for employment (a golden handshake) or as a result of negotiated severance payment. These lump sums are considered Eligible Termination Payments (ETP) by the ATO and must be reported separately from PAYG summaries.
Let’s work through an example. Mary-Jane has suffered a disability and must resign from her employment. She was given $10,000 on termination as recognition of her contribution, and this was taxed at 32% or $3,200. During the year Mary-Jane had taxable income (in addition to this lump payment) of $50,000 and tax withheld on this was $10,500.
Mary-Jane’s employer must issue TWO forms to Mary-Jane no later than the 14th July for the preceding financial year. The first form, which is an ETP Summary, will disclose taxable earnings of $10,000 and tax withheld of $3,200. The second form is Mary-Jane’s PAYG summary which will show taxable income of $50,000 and tax withheld of $10,500. The tax office accepts both of these forms in electronic format only.
For the accountants and bookkeepers reading this blog, currently Xero does not prepare ETP within the software. MYOB does have this ability. The ETP can be created in many practice management platforms such as Xero Practice Manager and Gov Reports.
We would be pleased to assist you in the creation of your ETP, to get assistance please give us a call on 0426 625683.
The Team from CloudCounting