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Tuesday, 16 February 2016

Taxes on severance benefits

Q: I would like to find out if an employee was given the 45 days notice on a redundancy and they took the option of payment In Lieu of notice, would this amount be taxed?

A: According to section 5(6) of the Income Tax Act 1938, as amended,

"... where under a contract of employment the employer is liable to pay an amount by way of severance pay upon the termination of the employment of an employee by reason of the redundancy of the position held by the employee or upon the retirement, or other termination of the employment, by reason of ill-health—

  • (a) so much of the amount as does not exceed three hundred thousand dollars shall be exempt from tax

*Section 5(7) gives a definition of the term:“severance pay” includes any payment in lieu of notice and any payment made in relation to past service of the employee;