ETP processing assigns incorrect tax rate to a terminated employee in QuickBooks 2012/13

Legacy KB ID: 4493

Question

Why does QuickBooks assign the incorrect tax rate for a terminated employee?  He is subject to the higher 31.5% tax rate but QuickBooks is calculating at the lower tax rate of 16.5%.  The payment is below the cap amount.

Answer

The tax rate is determined by whether the employee’s age is above or below his Preservation Age “on the last day of the income year in which the payment is made.”  It is not defined as the age on the day of termination. 

Therefore, it is possible for two employees of the same age in years to be defined as of different ages for comparison to the Preservation Age, depending on when their birthday is in relation to the end of financial year. 

For instance, two employees both turning 55 this calendar year are retrenched in March and will be receiving an ETP.  Their Preservation Age is 55.  The first employee has a birthday in June and the second in July.  The first employee will be deemed as age 55 and entitled to the lower tax rate of 16.5% and the second will be deemed as age 54 and subject to the 31.5% tax rate. 

 

Additional Information

See the ATO website: https://www.ato.gov.au/nonprofit/content.aspx?doc=/content/00094527.htm

 

 

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