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  • Redundancy payments

    Certain redundancy payments are tax-free up to a limit based on the number of years you worked for that employer.

    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.

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    Genuine redundancy

    A genuine redundancy payment is a payment made to you as an employee if you're dismissed because the job you were doing has been abolished. This means your employer has made a decision that your job no longer exists, and your employment is to be terminated.

    Your genuine redundancy payment is:

    • tax-free up to a limit based on your years of service
    • concessionally taxed as an employment termination payment (ETP) above your tax-free limit
    • taxed at your usual marginal tax rate for any amount above certain caps.

    The tax-free amount is not part of the employee's ETP. It's reported as a lump sum in the employee's income statement or PAYG payment summary – individual non-business.

    Any amount over the tax-free limit is part of the employee's ETP.

    Changes to genuine redundancy and early retirement scheme payments

    On 29 October 2019 changes to the age employees can access concessional tax treatment for genuine redundancy and early retirement scheme payments became law. The age-based limit of 65 years old has changed to the age pension age (66 years old).

    This change applies to payments made to employees who are dismissed or retire on or after 1 July 2019.

    See also:

    Non-genuine redundancy

    A non-genuine redundancy occurs when the employee:

    • is dismissed because they've reached normal retirement age
    • is their pension age or older on the day of dismissal
    • leaves voluntarily
    • has their contract terminated
    • is dismissed for disciplinary or inefficiency reasons.

    A payment for a non-genuine redundancy is taxed as part of the employee's ETP. This means it will generally be taxed at a lower rate than your normal income, provided the payment doesn't exceed certain caps.

    See also:

    Amounts included and excluded from a redundancy

    Depending on your employment conditions, a genuine redundancy payment may include:

    • payment in lieu of notice
    • severance payment of a number of weeks' pay for each year of service
    • a gratuity or 'golden handshake'.

    The following payments are not included in a genuine redundancy payment:

    • salary, wages or allowances owing to you for work done or leave already taken for work completed
    • lump sum payments of unused annual leave or leave loading paid on termination of employment
    • lump sum payments of unused long service leave paid on termination of employment under a formal arrangement
    • payments made in lieu of superannuation benefits.

    Any payments that meet the conditions of a genuine redundancy are tax free up to a limit based on your years of service with your employer.

    The tax-free limit is a flat dollar amount plus an amount for each year of completed service in your period of employment with your employer. Indexation changes the tax-free limit on 1 July each year.

    Your employer will report the tax-free amount as a lump sum on your income statement or PAYG payment summary – individual non-business.

    See also:

    Last modified: 25 Jun 2020QC 27128