The whole-of-income cap
Enquiry:
I am a 61-year-old former commercial pilot who retired in November 2019. My taxable income from my wages in 2019–20 up to that point was $100,000. My employer paid me an employment termination payment (ETP) of $50,000, in the form of a gratuity.
How much my employer should withhold from the ETP?
Explanation:
Your ETP is a non-excluded ETP, so the lesser of the two caps apply.
Your whole-of-income cap is reduced from $180,000 to $80,000 because you earned $100,000 in 2019–20.
This is less than your ETP cap ($210,000 for 2019–20), so the calculated whole-of-income cap applies to your ETP.
Since your ETP ($50,000) received is less than your calculated whole-of-income cap ($80,000), your entire ETP is taxed at concessional rates.
You have reached preservation age, so your employer withholds tax at a rate of 17% from your ETP.
Notes: The whole-of-income cap is $180,000 for the 2018-19 year minus other taxable income you earn throughout the income year. The taxable component of your ETP is taxed at either 17% or 32% up to your whole-of-income cap. Any amounts over the whole-of-income cap are taxed at the top tax rate (47%).