A staff member was paid an ETP upon departure which comprised of a payment in lieu of notice. Tax was withheld using the whole-of-cap method. The staff later sought legal advice for further compensation. The employer agreed to further compensate the staff with an ex-gratia payment. What would be the correct tax treatment for this ex-gratia payment and what amount of tax should be withheld, if any? Thank you.
Hello @Judy33
The additional ex-gratia payment is also known as a 'golden handshake'.
Referring to the link below to Table A, the golden handshake payment is taxed at either 32% if the employee is under preservation age, 17% if preservation age or over, or 47% for any amount that exceeds the whole-of-income cap of $180,000.
You can find all of the ETP withholding rates in Table A on our web site.
Hello @Judy33
The additional ex-gratia payment is also known as a 'golden handshake'.
Referring to the link below to Table A, the golden handshake payment is taxed at either 32% if the employee is under preservation age, 17% if preservation age or over, or 47% for any amount that exceeds the whole-of-income cap of $180,000.
You can find all of the ETP withholding rates in Table A on our web site.
Thank you for your reply. In the same scenario, if the employer also agreed to pay a fixed amount to the employee (in additional to the ex-gratia payment) to cover for professional expenses, should that be treated as part of the 'golden handshake' and be taxed? Or can it be processed similar to a reimbursement and not be required to withhold tax?
Many thanks for your help!
Hi @Judy33
A reimbursement is different to an employment termination payment, so it won't be part of the ETP if it is an actual reimbursement.
If the employee has actually incurred the expense and is reimbursed for that, it doesn't form part of their assessable income. It's an expense payment fringe benefit instead.
if these expenses are to be incurred following departure of employee can they still be considered expense payment fringe benefit ?
eg. the employer is reimbursing the employee for expenses which are to be incurred by the employee following the employment departure - such as flights, visa expenses, doctor appointments etc
Hi @fen2022,
An employee for FBT purposes incudes current, future and past, so it'll still be treated as a fringe benefit. You can view this information from our Fringe benefits webpage.
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