Approved early retirement schemes

An approved early retirement scheme is a payment which is tax-free to a limit. These schemes are put in place by employers to encourage certain groups or classes of employees to retire early or resign.

For employees to get special concessional tax rates, the Commissioner of Taxation must approve the scheme before payments start.

The tax-free amount of the early retirement scheme payments depends on the number of years you worked for your employer. The tax-free limit is a whole dollar amount, plus an amount for each whole year of service with that employer. Indexation changes the tax-free limit on 1 July each year.

The tax-free amount is not part of your employment termination payment (ETP). Any payment amount over the tax-free limit is treated as an ETP.

The concessional taxation treatment for genuine redundancy and early retirement scheme payments now extends to individuals who are 65 years of age or older, if they are dismissed or retire before they reach pension age. This applies to payments made on or after 1 July 2019. Before 1 July 2019 this tax treatment only applied to individuals under 65 years old.

You need to be wary of Illegal super schemes people offer to help you gain access to your super savings before you reach your preservation age. Heavy penalties apply if you participate in these schemes.

Related pages

Employment termination payments
Find out how employment termination payments are taxed

Redundancy payments
Work out if your payment is a genuine or non-genuine redundancy and how it is taxed

Genuine redundancy and early retirement scheme changes
Find out if changes will affect the tax-free amount of the payment you receive