Termination Payment (Part 1)

Q&A Tax

Question :

Due to a work injury to his right arm, Harry, aged 57 years, took an ETP payment and resigned from
ABC LTD on 31 May 2016. His date of birth is 31 May 1954. He had worked with the company since 1
June 1981 (35 years). He was due to retire on 31 May 2019 at age of 60.

He received an employment termination payment (ETP) of $180,000.

Other information

Number of days of work from 1 June 1981 to 31 May 2016

Number of days until retirement from 31 May 2016 to 31 May 2019 1,095

Calculate the invalidity segment which is the tax-free component of the ETP (please ignore the effect
of the pre- July 1983 component)

 

Answer :

Calculate the amount of the invalidity segment using the following formula in ITAA 97s 82-150(2)

Amount of the ETP × (days to retirement)/(employment days + days to retirement)

$180,000 × 1,095 days/(12,784 days + 1,095 days)=$14,201

Note: Number of days have been adjusted for leap years.

Invalidity segment is tax-free, and no tax is payable on this amount.

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