Payroll Q&A – Genuine redundancy payments made to employees over the age of 65

Payroll, Public
Author: Steve Griffiths
4 Oct 2018

Answer

The specific provisions regarding genuine redundancy payments (GRPs) provide that an employee must be dismissed before the day they turn 65 for the payment to qualify as a GRP. If retirement age under the employment contract is a lesser age, then dismissal must occur prior to that age. Therefore, even though your employee is genuinely being made redundant, the payment cannot qualify as a GRP that is able to access the tax-free threshold.

You are correct that their redundancy payment will be taxed as an ETP. However, where the only reason the payment does not qualify as a genuine redundancy payment is due to the employee reaching retirement age, the ETP taxation provisions confirm that only the ETP cap needs to be considered. For further information, refer to the ‘Which Cap to Apply’ section of QC 26218 published by the ATO.

Therefore, the payment will be taxed as an ETP with amounts up to the ETP cap (which for the 2019 income year is $205,000) taxed concessionally. Please note that the concessional tax rate applicable should be 17% because the employee has reached preservation age. You can find the current withholding rates for ETPs in QC 55466. Any part of the payment in excess of the ETP cap will be taxable at top marginal rates.

This article provides a general summary of the subject covered as at the date it is published. It cannot be relied upon in relation to any specific instance. TaxEd Pty Ltd and any person connected with its production disclaim any liability in connection with any use. It is not intended to be, nor should it be relied upon as, a substitute for professional advice.

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