Un-used Leave Payments on Termination
This article describes how to tax un-used leave that employees have accrued
when they terminate their employment.
Un-used Annual and Long Service Leave on termination accrued after 17 August 1993
Employees must be paid all unused annual and long service leave when they
cease employement. When the termination is NOT the result
of a Bona-fide Redundancy, Invalidity or an approved early retirement scheme and
the accrual period is after 17th August 1993, the tax on unused leave
amounts should be withheld at the normal marginal rate. Withhold tax as you would
for a bonus over 12 months (refer to bonuses article).
Un-used leave amounts paid should be shown under the gross figure on end-of-year payment
summaries.
Un-used Annual and Long Service Leave on Redundancy, Invalidity and Early Retirement
Un-used Annual leave paid as a result of bona-fide redundancy, invalidity or an approved
early retirement scheme is to be taxed at 31.5% and appear as part of 'Lump Sum A' as above.
Un-used Annual Leave pre 18 August 1993
Un-used Annual leave which accrued prior to 18 August 1993 is to be taxed at 31.5% (this includes 1.5% medicare levy).
Payment amounts should appear on the end-of-year Payment Summary under 'Lump Sum A' and should not be part
of the gross figure.
Un-used Long Service pre 18 August 1993/ post 15 August 1978
Long Service Leave which accrued after 15 August 1978 and before 18 August 1993 should be treated the same way.
Un-used Long Service accrued pre 16 August 1978
Only 5% of un-used Long Service Leave accrued prior to 16 August 1978 should be taxed at the
marginal rate. The amount paid should appear under Lump Sum B on the end of year payment summary.
What is the Annual leave accrual period?
This is the period over which annual leave is accrued. When leave is taken, the accrual period is
shortened on a first in/ first out(FIFO) basis. This means that when leave is taken, it should be taken
from the oldest period from which it was accrued. This becomes important when calculating the amount accrued
before 18 August 1993. All leave taken should be taken which accrued prior to this date first.
The long service leave accrual period
In contrast to annual leave, the long service leave accrual period is calculated on a first in/ last out
basis (FILO). This means that any annual leave taken should be taken from when it was most recently
accrued.
Any un-used sick leave
Any unused sick leave payments should be treated as Eligable Termination Payments (ETPS)
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Sunday, 5th Feb 2012
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