At Endurego Tax in Inner West Sydney, we help individuals and business owners make informed, tax-efficient decisions—especially regarding Eligible Termination Payments (ETPs) during major life and career changes like retirement or business exit.
One powerful yet often overlooked strategy is the use of Eligible Termination Payments (ETPs). These are lump sum payments made when an employment relationship ends, whether through resignation, retirement, or business closure. When structured properly, ETPs can attract significantly lower tax rates than standard income or company profits.
What Qualifies as an ETP?
An ETP can include:
- Payment in lieu of notice
- Ex gratia or ‘golden handshake’ payments
- Compensation for wrongful dismissal
- Excess amounts from genuine redundancy or early retirement
- Compensation for loss of employment
For business owners operating under a company or trust, it’s possible to pay yourself an ETP when you retire, sell, or wind up the business.
Why Consider an ETP?
The tax treatment is where ETPs shine:
- If you’ve reached your preservation age (e.g., 56 for those born before 1 July 1961), the first $195,000 of an ETP is taxed at just 17% (including Medicare levy).
- This is far lower than the company tax rate of 25%-30%, depending on your structure.
- For couples in business, both partners may qualify—meaning up to $390,000 could be taxed at just 17%, offering significant tax savings during a business exit or retirement.
Key Conditions to Keep in Mind
- ETPs must generally be paid within 12 months of termination to receive concessional tax treatment.
- Payments must fall within eligible categories—strategic tax planning is essential.
Let’s Maximise Your Exit Strategy
Whether you’re selling your business or planning for retirement, our experienced team at Endurego Tax can help you assess whether an ETP is right for your situation. We specialise in tailored tax planning for small business owners across Inner West Sydney, ensuring your hard-earned wealth is protected and optimised.
📞 Get in touch with us today to explore your ETP options and secure a smarter, more tax-effective exit.
