Ask an expert - Lump Sum A

[ 18-Nov-2012 ]

Q:
I have a general taxation query that you may be able to assist with.

When paying out annual leave and long service leave in conjunction with a redundancy, the leave payments are generally taxed at 31.5% flat rate - these payments then appear in LUMP Sum A box of the payment summary.

My question is,  when an employee completes his/her tax return at the end of the financial year, do the Lump Sum A payments get assessed in conjunction with their normal salary and wages or do the Lump Sum A components get treated independently of normal gross salary and wages ?

Any information would be welcomed.

A:
Well, unfortunately - or fortunately if you are an income earner in the highest marginal tax bracket - the tax withheld from payments on termination are legislated amounts and the Tax Office will assess the individual’s returns in accordance with the legislated rates.

So Lump Sum Payments taxed at 31.5% (or 16.5% if applicable) will be assessed by the ATO independently of salaries and wages. And although the individual may apply for a reassessment of their return, it would be a rather optimistic to expect a reduced Lump Sum tax rate, as the ATO are required to apply the legislated rates.

Maria Nikoletatos
Chief Knowledge Officer

Australian Payroll Association


Australian Payroll Association members have access to a payroll helpdesk managed by Maria.  You can join Australian Payroll Association HERE
 

 


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Chris commented on 23-Sep-2013 08:22 AM4 out of 5 stars
Just to add to this, although it's not part of your question: From experience, Lump Sum D (the redundancy portion) generally does not count as assessable income.
My wife was paid a large redundancy in the final week of FY13. We were panicing that the payment would effect all sorts of things. Income tax return. Child care benefits. Family Tax A etc etc.
Fortunately, the "D" portion doesn't count towards any of these.
Anonymous commented on 23-Sep-2013 08:50 AM5 out of 5 stars
Good question and answer

 
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