Termination Payment (Part 2)

 

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

The invalidity segment is $14,201

Number of days from 1 June 1981 to 30 June 1983: 760 days
Number of days of work from 1 June 1981 to 31 May 2016: 12784 days

Calculate the pre-July 1983 segment which is the tax-free component of the ETP

 

Answer :

To determine the pre-July 1983 component, use the following formula:

(Amount of ETP – Invalidity segment) × (Number of days of employment to which the payment relates
that occurred pre-1 July 1983 / the total number of days of employment to which the payment relates)
($180,000 – $14,201) × (760 days/12784 days) = $9,857

$9,857 is the pre-July 1983 component is also tax-free.

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