ETP time limits

Generally, employers must pay an ETP within 12 months of the termination of

employment to qualify for a reduced rate of tax withholding. However, slightly
different rules apply until 30 June 2012 in relation to certain transitional ETPs.
Employers should check with their tax advisers to determine whether these transitional
arrangements apply to them.
In cases where tax is required to he withheld from an ETP, employers must complete an
ATO PA YGPayment Summaty Employment Termination Payment form (NAT 70868).
They must also:
give a copy to the employee, or the trustee of the deceased estate, if applicable, within
14 days of payment
retain a copy for their records
Keyprinciples underpinning abest practice dismissal
the employee stopped working early (chat is, before their last retirement day), and
two legally qualified medical practitioners have certified that it is unlikely that
the employee can ever work again in a role that he or she is reasonably qualified
for because of his or her education, training or experience.
Paymentsondeathofemployee
When an employee dies, a death benefit payment may be made by his or her
employer to a dependant, a non-dependant (such as an adult child), or the trustee of
the employees estate. Such a payment is called a death benefit ETP.
The tax-free and taxable components are calculated the same for all ETPs, whether
paid in consequence of the death of the employee or not. However, different tax
rates apply. For example, where a death benefit ETP is paid to a dependent, the
tax-free component is not subject to any tax and the taxable component (up to the
ETP cap amount) is also tax-free.
Termination payments tosenior executives
In March 2009, the federal government announced reforms aimed at curbing
excessive termination benefits paid to company executives. As part of these
reforms, it introduced into parliament in June 2009 the Corporations Amendment
(Improving Accountability on Termination Payments) Bill 2009.
According to its Explanatory Memorandum, the Bill aims to address the
significant community concern about excessive pay practices, particularly at a
time when many Australian families are being hit by the global recession. It is
designed to strengthen the existing regulatory framework applying to termination
benefits by:
better empowering shareholders to disallow excessive termination benefits,
particularly where they are a reward for poor performance
improving the accountability of company management in setting remuneration,
and
promoting responsible remuneration practices.
The key features of the Bill include:
shareholder approval, which will be required for termination benefits for directors
and executives exceeding one years base salary (under current law termination
benefits can reach up to seven times a recipients total annual remuneration before
shareholder approval is required)
broadening of existing rules to cover, not only company directors, but also senior
executives and key management personnel, and
strengthened penalty provisions, with penalties of up to S99,000 for corporations
(instead of the S 16,500 maximum that applies under the current law).
The Bill wasthe subject of an inquiry by the Senate Economics Committee, which
handed downitsfinal report on 7 September 2009. On 9 September 2009, the Bill
was passed by the house of Representatives but, at the time of writing, it is still
awaiting passage through the Senate.
A further step taken by the government has been to refer the issue of excessive
executive remuneration to the Productivity Commission for inquiry. The
Commission is due to issue its final report findings on 19 December 2009. Further
information is available from the Commissions website.
Author is a employment law writer of Perth, Australia.
http://www.perthemploymentlawyers.com.au/