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Savinay(Newbie)Newbie
22 Oct 2024

Hi There,


I am in the process of negotiating an ex-gratia payment to an individual who has signed an employment contract but has not yet started. We are no longer proceeding with the role.


Questions I have are:

  • What are the tax implications (if any)?
  • What is the best approach to make this payment (e.g. set them up and process through our payroll platform or process the transaction through an expenses reimbursement)?
  • What are the implications if the said individual is set up with an ABN. Could they possibly be classified as falling under the PSI (Personal Services Income) and therefore their tax is payable per the Individual Tax brackets.

 

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2 replies
335 views
2 replies

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Most helpful reply

TamaraATO(Community Support)Community Support
27 Oct 2024

Hello @Savinay,


Maybe. 🤔


An ex-gratia bonus is considered OTE when it's in respect of ordinary hours. Do you mean your payment is more of a sign-on bonus?


We've answered similar questions in prior posts, we'll link both sides of the coin for you to have a look at. But either way it's most likely taxable.


If you're still unsure you may need some more help from our tailored technical team. 👌


As for the best way to set it up, we can't advise on that.


All replies

Most helpful reply

TamaraATO(Community Support)Community Support
27 Oct 2024

Hello @Savinay,


Maybe. 🤔


An ex-gratia bonus is considered OTE when it's in respect of ordinary hours. Do you mean your payment is more of a sign-on bonus?


We've answered similar questions in prior posts, we'll link both sides of the coin for you to have a look at. But either way it's most likely taxable.


If you're still unsure you may need some more help from our tailored technical team. 👌


As for the best way to set it up, we can't advise on that.


Savinay(Newbie)Newbie
29 Oct 2024

Thanks Tamara.

I don't think this can be classified as a sign on bonus. The reason of the classifying it as "ex-gratia" is that it's like a compensation for retracting the role, post signing the contract. This person has also resigned from the previous role. As this scenario leaves them in no-man's land, it's a just a way of making them whole...

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Ex-Gratia payment | ATO Community