ETP (resignation) & Ex-Gratia Payments (paid in instalments)

 Author: PayrollDeanne(Taxicorn)Taxicorn

20 May 2025

Hiya @Canvale002 👋

First step is to classify the "ex-gratia" payment. It may be an ETP if it is in consequence of employment, as per TR 2003/13.

If it is an ETP, then multiple payments is a standard transaction that occurs and the ATO address that through the use of types of ETPs. For example, if it is an ETP, Instalment 1 is ETP type O, Instalment 2 is ETP type O and Instalment 3, if paid in a subsequent FY, is ETP type P (an O paid in a subsequent FY). If that is the case and Instalment 3 is an ETP type P, then the tax arrangements are as if it was paid in the prior FY (caps such as WIC include the prior FY income etc). This arrangement has always existed, to prevent employees from minimising their tax.

If it is not an ETP, then you may need to seek tailored technical assistance.

Deanne

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 Author: Canvale002(Initiate)Initiate

20 May 2025

Hi Deanne,

Thanks for your response.

According to the Deed of Release the Ex-Gratia payments are classified as an ETP.

When calculating the tax should I use the:

1. ETP Cap ($245,000) - tax on all 3 x payments would be be 32% OR
2. Whole of Income Cap ($180,000) - tax on first 2 x payments (FY25)= 47% (as earnings in FY25 are over $180K), tax on 3rd payment (FY26) = 32% (as earning in FY26 = $0).

Thanks again

Kelly

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