Payroll tax on termination payments

Payments you make to an employee when they stop working for you may be taxable.

This includes payments made to non-employee directors for terminating office and to contractors 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.

You must include these payments when calculating your taxable wages. When you lodge your periodic return, include these payments as part of your Queensland taxable wages. When lodging your 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.

Also consider…

• See the full list of taxable and non-taxable wages.
• Learn about payroll tax on contractor payments.
• Find out how payroll tax works for directors fees and payments.