Payroll tax on termination payments

Amounts you pay an employee when they stop working for you may be taxable.

This includes payments made to non-employee directors for terminating office and contractors who have been taken to be your employees for payroll tax purposes for termination of service.

Termination payments include:

• unused annual, long-service or sick leave, no matter when it was accrued
• employment termination payments (ETPs) declarable as income under the Income Tax Assessment Act 1997 (Cwlth). The amount of the ETP that is liable is the amount paid by you less the income tax exempt component when received by your employee.

Taxable wages

The list of taxable termination payments include:

• unused annual leave, sick leave, long-service leave, bonus, loading or other additional payments relating to that leave
• ex gratia payments or ‘golden handshakes’
• payments in lieu of superannuation
• payments in lieu of notice
• income taxable component of approved redundancy or early retirement scheme payments.

When calculating your taxable wages, include these payments.

When you lodge your:

• periodic return, include these payments as part of your Queensland taxable wages
• annual return, enter these payments in the ‘Termination payments’ field as part of your Queensland taxable wages.

Non-taxable wages

Non-taxable termination payments include the:

• invalidity segment of the ETP
• income tax-exempt component of genuine redundancy payments or early retirement scheme payments
• death benefit segment of an ETP that is income tax exempt.

When you lodge your annual return, enter non-taxable termination payments in the ‘Other non-taxable payments’ field as part of your Queensland non-taxable wages.

Read the public ruling on termination payments (PTA004) for more information.