Institute of Certified Bookkeepers
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Taxing Full Long Service Leave Payout

  • Member in Practice
  • Practice Certificate
  • 12 posts
  • # 119100

I'm looking for a simple explanation of taxing a full LSL leave payout.  I find the ATO calculation sheet very confusing as they throw in too many variations.  The employee has been working for the past 11 years and the business is now closing.  I have calculated the accruals, I simply need to know the rate of tax to apply.  

Many thanks in advance.

Bev Coleman

  • 15 posts
  • # 119173

When you leave a job, the tax you pay on payments you receive for unused leave, termination of employment or redundancy may be different to the tax you pay on your normal income. The tax you pay depends on the reason for leaving the job and any unused entitlements you may have accrued, such as long service leave or sick leave.

If you receive any lump sum payments from your employer for unused annual leave or unused long service leave, these may be taxed at a lower rate than your other income. These lump sum payments will appear at either 'Lump sum A' or 'Lump sum B' on your income statement or payment summary.

If as a result of COVID-19 you are taking leave, have been stood-down or have lost your job, see Tax on employment payments for more information on payments you may receive in these circumstances.

When you leave a job, you:

can request an income statement or payment summary from your employer
may need to lodge a tax return early – for example, if you are leaving Australia permanently.

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