What is the concessional ETP tax rate for high-income earners?
ETPs are generally taxed at a lower rate than an employee’s regular income as a result of the low rate cap. The top marginal rate only applies to amounts above the cap.
High-income earners are subject to additional rules. Any taxable component of the ETP below $180,000 is taxed either at 16.5% or 31.5%, depending on the type of payment. Any amount that exceeds $180,000 is taxed at the top marginal rate of 46.5%.
ETP tax for life benefit and death benefit termination payments
Employers need to bear in mind that life benefit termination payments and death benefit termination payments are subject to different taxation rules.
In the case of a life benefit termination payment, the taxable component is taxed at ordinary tax rates. However, employees may be eligible for a tax offset which puts an upper limit on the tax withheld, depending on their age:
- If the employee is 55 or over, the tax withheld cannot exceed 16.5% on the amount up to the low rate cap.
- For employers under the age of 55, the tax withheld cannot exceed 31.5% up to the low rate cap.
Regardless of age, any amount over the low cap rate is taxed at the top marginal rate. This tax rate generally applies to each ETP an employee receives.
For the death benefit payment, the tax rate varies depending on who the payment is made to:
- If the payment is made to a dependant of the deceased employee, no tax is withheld from the tax-free component. This also applies to the taxable component, provided it is within the low rate cap range.
- If the payment is made to a non-dependant, no tax is withheld on the tax-free component. Any amount up to the low rate cap is taxed at 31.5%. Any amount that exceeds this is taxed at the top marginal rate.
Lastly, if an employee has not provided a Tax File Number (TFN), the employer is required to use the top marginal rate when withholding tax on an ETP.
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