Death Benefit ETP
Not available in Accountants Office
A Death Benefit ETP is a benefit paid in consequence of the death of a person to a dependant or the legal personal representative of the deceased person or to any other person, a non-dependant (Section 27AAA).
The treatment of the taxable component of death benefit Employment Termination Payments (ETPs) depends on whether the payment is made to a dependant or non-dependant and how much is paid.
Payment to a dependant
From 1 July 2007, the taxable component of a death benefit ETP, paid to a dependant that is within the recipient’s cap on concessionally taxed employment termination payments is tax-free. The remainder of the taxable component (if any) will be taxed at the top marginal tax rate plus Medicare levy.
Payment to a non-dependant
From 1 July 2007, the taxable component of a death benefit ETP, paid to a non-dependant that is within the recipient’s cap on concessionally taxed ETPs will be taxed at a maximum rate of 30% plus Medicare levy. The remainder of the taxable component (if any), will be taxed at the top marginal tax rate plus Medicare levy.
Tax treatment of a death benefit
Recipient | Tax on Taxable Component from 1 July 2007 |
|---|---|
Dependant | The amount within the recipient’s ETP cap is tax-free The amount over the recipient’s ETP cap is taxed at the recipient’s top marginal tax rate plus the Medicare levy. |
Non-dependant | The amount within the recipient’s ETP cap is taxed at a maximum rate of 30% plus Medicare levy The amount over the recipient’s ETP cap is taxed at the recipient’s top marginal tax rate plus the Medicare levy. |
Cap on death benefit ETPs
The cap on death benefit employment termination payments is $200,000 for the current income year and is indexed annually.
The cap limits the amount of death benefit ETPs payable by the same employment termination that is concessionally taxed.
The death benefit ETP cap operates independently of the life benefit ETP cap. This means that any death benefit ETPs the taxpayer receives do not count towards the life benefit ETP cap. Similarly, any life benefit ETPs the taxpayer receives do not count towards the death benefit ETP cap.
For example, the taxpayer’s spouse dies and he or she receives a death benefit ETP from the spouse’s employer. The taxpayer then resigns from their job and receives a life benefit ETP. The $200,000 cap applies separately to each payment.
The whole of income cap for the current year is $180,000.
ETP Death Benefits Tab
Payment to a Dependant: The tax-free component is non-assessable non-exempt income and is tax exempt and not to be included in Taxable Income.
Taxable Component Over the Recipient’s Cap: This is the amount of the Death Benefit that exceeds the ETP Death Benefits cap and is taxed at the top marginal rate of tax plus Medicare levy.
Maximum rate all ages: The maximum rate of tax is 45% regardless of the taxpayer's age.
Payment to a Non-dependant
Taxable Component Up to the Recipient’s cap: The amount received up to the recipient’s cap for an ETP Death benefit is taxed at marginal rates with an offset to ensure that tax is not charged at a rate higher than 30%.
Maximum rate all ages: The maximum rate off tax for all ages is 30%.
Death Benefit cap: The Death Benefit cap is a once only life-time cap for each Death Benefit received in consequence of the death of the same person.