Example 1: Withholding from a bonus payment using Method A Mark, who has an accumulated HELP debt, is due to receive an annual bonus of $900. Mark earns $1,500 per week. Using Method A, calculate the withholding amount for the current pay period as follows: PAYG withholding component
As Mark has an accumulated HELP debt, his employer also needs to calculate a withholding amount from the bonus payment for HELP. They use the same method as they used to calculate withholding for the bonus payment in the first part of this example. HELP component
Withholding limit (including HELP component)
Calculate the total PAYG withholding amount for the current pay period (step 10) Add the amounts to be withheld: ■ PAYG withholding on gross earnings in the current pay period = $356 ■ HELP withholding on gross earnings in the current pay period = $90 ■ PAYG withholding on additional payment = $312 ■ HELP withholding on additional payment = $52 The total PAYG withholding is $810 ($356 + $90 + $312 + $52). |
Example 2: Withholding from a missed payment using Method B(i) Robyn, who has an accumulated HELP debt, is due to receive a back payment relating to the current financial year following a pay rise. Since the first pay period of the current financial year and up until period 8, Robyn has earned $1,000 per week. From pay period 9 (her current pay period), Robyn will earn $1,100 per week. Robyn’s back payment which covers the first eight pay periods of the current financial year will be paid to her in pay period 9. Therefore, Robyn will receive a back payment of $800 along with her normal gross earnings of $1,100. Using Method B(i), calculate the withholding amount for the current pay period 9 as follows: PAYG withholding component
As Robyn has an accumulated HELP debt, her employer also needs to calculate a withholding amount from the back payment for HELP. They use the same method as they used to calculate withholding for the back payment in the first part of this example. HELP component
Calculate the total PAYG withholding amount for the current pay period Add the amounts to be withheld: ■ PAYG withholding on gross earnings in the current pay period = $217 ■ HELP withholding on gross earnings in the current pay period = $44 ■ PAYG withholding on additional payment = $272 ■ HELP withholding on additional payment = $352 The total PAYG withholding is $885 ($217 + $44 + $272 + $352). |
Example 3: Withholding from a lump sum payment in arrears using Method B(ii) Mary is employed by Minercorp Pty Ltd and receives a fortnightly salary of $1,800. She is entitled to an allowance from her employer when working in remote areas. In 2015, Mary worked in a remote area for six months, but she was not paid this allowance. The total allowance that she should have been paid for this period was $2,480. Her employer discovers their oversight and agrees to pay her the $2,480 as a lump sum payment in arrears on 11 November 2017. Her gross earnings for pay period 10 is $1,800. Mary has received normal earnings (year to date) of $18,000 including the current pay. The amount Mary’s payer must withhold from this payment is calculated using Method B(ii) as follows: Example 3 Method B(ii) instruction
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Method B(i) – PAYG withholding component
As Pablo has an accumulated Financial Supplement debt, his employer will need to calculate a withholding amount from the back payment for SFSS. They use the same method as they used to calculate withholding for the back payment in the first part of this example. Method B(i) – SFSS component
Method B(ii) – PAYG withholding component
As Pablo has an accumulated Financial Supplement debt his employer will need to calculate the withholding amount from the back payment for SFSS. They use the same method as they used to calculate withholding for the back payment in the first part of this example. Method B(ii) – SFSS component
Withholding limit (including SFSS component)
Calculate the total PAYG withholding amount for the current pay period Add the amounts to be withheld: Withholding on gross earnings current pay period ■ PAYG withholding on gross earnings in the current pay period = $1,231 ■ SFSS withholding on gross earnings in the current pay period = $113 Method B(i) withholding ■ PAYG withholding on additional payment for current financial year = $556 ■ SFSS withholding on additional payment for current financial year = $36 Method B(ii) withholding ■ PAYG withholding on additional payment for prior financial year = $3,012 ■ SFSS withholding on additional payment for prior financial year = $936 Total PAYG withholding is $5,884 |
Payment type | Reason | Accrual dates | Withholding rates | Payment summary label |
Long service leave | Normal termination (eg voluntary resignation, employment terminated due to inefficiency, retirement) | Pre-16 August 1978 | 5% of total at marginal rates | B |
16 August 1978 to 17 August 1993 | 32% | A | ||
Post-17 August 1993 | Marginal rates | Include in salary/wages | ||
Termination because of genuine redundancy, invalidity or early retirement scheme | Pre-16 August 1978 | 5% of total at marginal rates | B | |
16 August 1978 to 17 August 1993 | 32% | A | ||
Post-17 August 1993 | 32% | A | ||
Annual leave | Normal termination (eg voluntary resignation, employment terminated due to inefficiency, retirement) | Pre-18 August 1993 | 32% | A |
Post-17 August 1993 | Marginal rates | Include in salary/wages | ||
Termination because of genuine redundancy, invalidity or early retirement scheme | 32% | A | ||
Annual leave loading | Normal termination (eg voluntary resignation, employment terminated due to inefficiency, retirement) | Pre-18 August 1993 | 32% | A |
Post-17 August 1993 | Marginal rates | Include in salary/wages | ||
Termination because of genuine redundancy, invalidity or early retirement scheme | 32% | A |
Example The following example uses the Weekly tax table (NAT 1005) effective from 1 July 2017. Beth retires on 31 December 2017. She qualified for long service leave after 10 years of service, with further leave accruing on each completed year of service. She is not leaving because of genuine redundancy, invalidity or under an early retirement scheme. This week Beth also receives her normal weekly earnings of $800. She has quoted her TFN and has claimed the tax-free threshold. Therefore, the amount withheld is calculated using column 2 of the Weekly tax table. Details of payment for long service leave Pre-16 August 1978 component = $3,690.00 16 August 1978 to 17 August 1993 component = $7,700.00 Post-17 August 1993 component = $10,890.00 Amounts to be withheld Pre–16 August 1978 component subject to withholding = $3,690.00 × 5% = $184.50 The marginal rate calculation is used to work out the amount to be withheld from the pre-16 August 1978 component. 16 August 1978 to 17 August 1993 component = $7,700.00 × 32% = $2,464.00 The post-17 August 1993 component of $10,890.00 is also to be withheld at the marginal rate. To simplify the marginal rate calculation for this employee, the pre-16 August 1978 component and the post-17 August 1993 component are added together first: $184.50 + $10,890.00 = $11,074.50 Now apply the marginal rate calculation to the sum of the two components. Marginal rate calculation
The amount to be withheld from the three components of Beth’s unused long service leave payments is $6,312 ($2,464 + $3,848). See Rounding of withholding amounts. The total amount to be withheld is then $6,425 ($113 withholding from normal earnings plus $6,312 withholding from long service leave). |
Example 2: Whole-of-income cap – payment less than cap Jane is an employee of SmallBiz Pty Ltd and is 50 years old. Jane’s preservation age is 60. Jane resigns from SmallBiz to start a new business. Up until Jane’s date of resignation, SmallBiz paid Jane salary and wages totalling $84,000. Under her employment contract, Jane will receive a ‘golden handshake’ of $10,000 from SmallBiz. This payment is an ETP and has a tax-free component of $2,000 (relating to service before July 1983) and a taxable component of $8,000. SmallBiz is required to withhold an amount under the PAYG withholding system. Jane had previously provided her TFN to SmallBiz. SmallBiz does not withhold from the tax-free component of $2,000, but must withhold an amount from the taxable component of $8,000. SmallBiz classifies the payment as a ‘golden handshake’. Using table A and the following steps, SmallBiz works out which cap to apply and the withholding rate:
SmallBiz withholds $2,560 from Jane’s ETP of $10,000. This is 32% of Jane’s taxable component of $8,000. |
Example 3: Whole-of-income cap – payment greater than cap Chris is younger than his preservation age. He has his employment terminated by MediumBiz in January. His employment termination does not meet the criteria of a genuine redundancy. MediumBiz paid Chris $50,000 in leave entitlements as a lump sum and $50,000 in salary and wages before his termination. In addition to this income, Chris is also paid $130,000 as an ETP comprising of a $100,000 taxable component and has a tax free component of $30,000 (relating to service before July 1983). As the ETP is not a genuine redundancy, MediumBiz classifies the payment as a ‘golden handshake’. Using table A and the following steps, MediumBiz works out which cap to apply and the withholding rate:
MediumBiz withholds $35,400 from Chris’s ETP of $130,000. This is $25,600 ($80,000 x 32%) plus $9,400 ($20,000 x 47%) of Chris’s taxable component of $100,000. |
Example 4: ETP subject to both ETP cap and whole-of-income cap Alec, 30, is made redundant by MacroBiz after 5 years of service and receives a termination payment of $65,678 that is part genuine redundancy ($40,678) and part gratuity ($25,000). Until his redundancy, Alec had received $140,000 in salary and wages for the income year. In this situation the part of the payment that is subject to the ETP cap only is always dealt with first. Alec’s employer calculates the genuine redundancy amount over the tax-free limit* as $5,133. This is calculated as follows: $40,678 less $35,545 due to the 5 years of service [$10,155 base limit plus $25,390 (5 x $5,078)]. The amount of $5,133 is an ETP. Using table A, his employer works out that only the ETP cap applies. Alec is under preservation age, so MacroBiz withholds $1,643 (32% of $5,133). Using table A and the following steps, MacroBiz then works out which cap to apply and the withholding rate on Alec's $25,000 gratuity part of the ETP.
MacroBiz withholds $1,643 from the $5,133 part of the ETP for genuine redundancy and $8,000 from the $25,000 gratuity part of the ETP. MacroBiz must issue Alec with two separate ETP payment summaries covering each part of the payment. * For more information about calculating the tax-free portion of a genuine redundancy payment, refer to Taxation of termination payments. | ||||||||||||||||||
Income component derived by your employee in the income year | Age of person at the end of the income year that the payment is received | Component subject to PAYG withholding | Rate of withholding | Cap to apply |
Life benefit ETP – taxable component Payment is because of: ■ early retirement scheme ■ genuine redundancy ■ invalidity ■ compensation for personal injury, unfair dismissal, harassment or discrimination. | Under preservation age | Up to the ETP cap amount | 32% | ETP cap |
Preservation age or over | Up to the ETP cap amount | 17% | ETP cap | |
All ages | Amount above the ETP cap amount | 47% | ETP cap | |
Life benefit ETP – taxable component Payment is: ■ a ‘golden handshake’ ■ non-genuine redundancy payment ■ severance pay ■ a gratuity ■ in lieu of notice ■ for unused sick leave ■ for unused rostered days off. | Under preservation age | Up to the relevant cap amount | 32% | Smallest of ETP cap and whole-of-income cap |
Preservation age or over | Up to the relevant cap amount | 17% | Smallest of ETP cap and whole-of-income cap | |
All ages | Amount above the relevant cap amount | 47% | Smallest of ETP cap and whole-of-income cap | |
Death benefit ETP paid to non-dependants – taxable component | All ages | Up to the ETP cap amount | 32% | ETP cap |
Amount above the ETP cap amount | 47% | ETP cap | ||
Death benefit ETP paid to dependants – taxable component | All ages | Up to the ETP cap amount | Nil | ETP cap |
Amount above the ETP cap amount | 47% | ETP cap | ||
Death benefit ETP paid to a trustee of a deceased estate | Nil |
Type of payment and tax component | Age of person at the date the payment is received | Amount subject to PAYG withholding | Rate of withholding |
Member benefit – taxed element of the taxable component | Under preservation age | Whole amount | 22% |
Preservation age to 59 years | Amount up to low rate cap | Nil | |
Amount above the low rate cap | 17% | ||
60 years and above | Whole amount | Nil | |
Member benefit – untaxed element of the taxable component | Under preservation age | Amount up to untaxed plan cap | 32% |
Amount above untaxed plan cap | 47% | ||
Preservation age to 59 years | Amount up to low rate cap | 17% | |
Amount above the low rate cap up to the untaxed plan cap | 32% | ||
Amount above untaxed plan cap | 47% | ||
60 years and above | Amount up to untaxed plan cap | 17% | |
Amount above untaxed plan cap | 47% | ||
Member benefit – total of preserved benefits is less than $200 | Any age | Nil – amount is | N/A |
Member benefit – terminal medical condition payment | Any age | Nil – amount is | N/A |
Death benefit paid to a dependant – taxed and untaxed elements of the taxable component | Any age | Nil – amount is | N/A |
Death benefit paid to a non-dependant – taxed element of the taxable component | Any age | Whole amount | 17% |
Death benefit paid to a non-dependant – untaxed element of the taxable component | Any age | Whole amount | 32% |
Death benefit paid to the trustee of the deceased estate | Any age | None | Nil |
Taxable component of super income stream contains | Withholding applies to the following amount(s) | |
Untaxed element | Taxed element | |
Yes | Yes | Sum of untaxed and taxed elements |
No | Yes | Taxed element |
Yes | No | Untaxed element |
Income Stream Components | Sum of components | Withholding/Tax Offset applies to the following amount(s) | ||
Tax-Free | Taxed | Untaxed | ||
No | No | Yes | Equal to or greater than the Cap | Withholding applies to the Untaxed Element and Tax Offset is capped at $10,000. |
Yes | Yes | Yes | Less than the Cap | Withholding applies to the Untaxed Element only and Tax Offset is calculated at 10% of the untaxed element. |
Income Stream Components | Sum of components | Next step | ||
Tax-Free | Taxed | Untaxed | ||
Yes | Yes | Yes | Equal to or greater than the Cap | Go to step 2 |
Yes | Yes | Yes | Less than the Cap | Go to part C (untaxed component) |