How do we calculate tax on termination?

For terminating employees , the tax on any lump sum payments for pro rata payment of salary inclusive of annual leave, annual leave loading and time off instead if overtime, but not ordinary hours, is calculated according to the marginal tax calculation.

1. Divide total gross lump sum payment by 52 (if paid weekly) or 26 (if paid fortnightly).
2. Add this amount to the normal gross earning of the employee for a pay period to create a ‘notional’ gross income.
3. Calculate tax installment on the new ‘notional’ gross income using the usual tax tables for the employee.
4. Take the difference between the tax on the employee’s normal gross earning and the tax on the new ‘notional’ gross income and multiply this amount by 52 or 26 as per step 1.

For further information please contact the Member Infoline on 1800 991 602.