The Government has announced it will limit the availability of the employment termination payment (ETP) tax offset.

 

 From 1 July 2012, only that part of an affected ETP, such as a golden handshake, that takes a person's total annual taxable income (including the ETP) to no more than $180,000 will receive the ETP tax offset.

 

Amounts above this whole‑of‑income cap will be taxed at marginal rates. The whole‑of‑income cap will complement the existing ETP cap ($175,000 in 2012‑13, indexed) which ensures that the tax offset only applies to amounts up to the ETP cap.

 

The ETP tax offset ensures that ETPs up to the ETP cap are taxed at a maximum tax rate of 15 per cent for those over preservation age and 30 per cent for those under preservation age.

 

Existing arrangements will be retained for certain ETPs relating to genuine redundancy (including to those aged 65 and over), invalidity, compensation due to an employment‑related dispute and death.

 

The measure provides savings to the Budget of $196.4 million over the forward estimates period.