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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.

    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: 14 Apr 2020QC 27128