Employment Lump Sum Tax Planner Australia 2026–27

Estimate PAYG withholding on a user-confirmed life-benefit employment termination payment (ETP) paid from 1 July 2026. Separate its tax-free and taxable components, select the correct cap treatment, account for earlier taxable income and prior cap use, and compare the calculated withholding with the amount on a payment summary. It does not classify a payment.

What this 2026–27 worksheet calculates

The Australian withholding schedule separates an ETP into a tax-free component and a taxable component. The page subtracts the confirmed tax-free component from the gross ETP, then divides the taxable component between the amount within the applicable cap and any excess. It applies the schedule’s 17%, 32% or 47% withholding rate to those bands.

For a payment the user confirms is excluded, the remaining ETP cap applies. For a payment the user confirms is not excluded, the applicable cap is the smaller of the remaining ETP cap and the remaining whole-of-income cap. These labels are legal and payroll classifications; the calculator does not infer them from a free-text description.

First establish whether the amount is an ETP

An ETP is generally a lump sum paid because employment ended, but the legislation and ATO guidance contain timing, connection and exclusion rules. Examples can include gratuities, compensation and certain redundancy excesses. Ordinary wages, accrued leave payments and super benefits should not be pushed into the ETP field simply to obtain a lower rate.

Use the employer’s payroll breakdown and ETP payment summary. Confirm the ETP code, component split and payment date. If the payment was made more than 12 months after termination, or under a settlement, obtain advice about whether an exception or different treatment applies.

Tax-free components are not a user-selected allowance

The tax-free component of a life-benefit ETP can include defined pre-July 1983 and invalidity segments. A genuine redundancy or approved early-retirement payment may also have a tax-free amount, but that amount is generally reported separately rather than as part of the ETP. The 2026–27 genuine redundancy limits are $13,598 plus $6,801 for each completed year of service, subject to the statutory conditions.

This calculator does not derive those components because eligibility and service periods must be established first. Enter only the amount shown in reliable payroll or adviser working papers. If the tax-free entry exceeds the gross ETP, validation stops instead of silently changing it.

The ETP cap is $270,000 for 2026–27

The Taxation Administration withholding instrument states that the ETP cap for the 2026–27 income year is $270,000. It is indexed annually. Earlier ETPs in the same income year, and certain payments connected with the same termination, can reduce the available cap.

Enter the earlier taxable amount that actually used the cap, not the gross earlier payment or its tax-free component. The page floors the remaining balance at zero. Multiple payments and mixed ETP codes deserve a payroll-level reconciliation rather than separate unconnected calculator runs.

The whole-of-income cap is a separate limit

The 2026–27 whole-of-income cap is $180,000 and is not indexed in the schedule. For non-excluded payments, it is reduced by other taxable income payments received in the income year, such as salary or wages. If other taxable income is already $180,000 or more, the displayed balance is zero.

The schedule contains detailed rules about which payments enter this calculation and when an ETP itself is included. The single input is therefore a confirmed payroll amount, not a substitute for reading those rules. Excluded payments such as eligible redundancy excesses can use ETP-cap-only treatment, while other payments may face the smaller cap.

Preservation age changes the within-cap rate

For a life-benefit ETP, the schedule applies 32% withholding within the relevant cap when the recipient is under preservation age at the end of the income year. It applies 17% when the recipient has reached preservation age. Amounts over the cap use 47%.

The rates shown are withholding rates specified by the schedule and should not have a separate 2% Medicare levy added again. Preservation age depends on date of birth and is not automatically the same as Age Pension age or the age on the payment date. Confirm the status used by payroll.

Withholding is not always the final assessment

PAYG withholding is collected by the payer. The final income-tax result is determined through the tax return, including the ETP tax offset, other income and circumstances. The tool compares entered withholding with schedule arithmetic but does not predict a tax refund or debt.

A positive “calculated higher” variance means the page’s estimate exceeds the amount entered as withheld; a negative variance means it is lower. Investigate component, code, cap and income differences before assuming an employer error. Rounding and payment-summary data can also matter.

Unused leave needs its own treatment

Unused annual leave and long-service leave are specifically excluded from ETP treatment. Their withholding can depend on when the entitlement accrued and the reason employment ended. They may appear on the same payslip but should remain outside the gross ETP input.

Likewise, salary to the final day, payment for ordinary hours, allowances, bonuses and expense reimbursements must be classified separately. Reconcile the net bank deposit to every payslip component rather than treating the deposit as one lump sum.

Settlement and compensation payments need advice

A settlement can contain several legal elements: unpaid wages, leave, an ETP, interest, costs or damages. The label used in a deed is relevant but may not determine tax treatment by itself. Timing and the connection to termination are important.

Ask the employer or legal adviser for an allocation supported by the settlement terms and tax law. Private rulings may be appropriate in uncertain high-value cases. The calculator cannot decide whether a discrimination, injury, harassment or unfair-dismissal amount is excluded, exempt or subject to an ETP cap.

Reconcile before accepting the final payslip

Check gross components, tax-free amounts, the ETP code, preservation-age status, earlier payments and year-to-date taxable income. Confirm that the payment date falls in 2026–27; a payment before 1 July 2026 uses the prior year’s cap and schedule even if the termination was later discussed.

Retain the employment agreement, termination letter, redundancy calculation, leave record, settlement deed, payslip and payment summaries. Differences are much easier to resolve before payroll closes the financial year.

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Frequently asked questions