Genuine redundancy
A genuine redundancy payment is a payment made to you as an employee if your job is abolished and you no longer have a job and you are under aged pension age. This means your employer has made a decision that your job no longer exists, and your employment is to be terminated.
Redundancy payments are a type of employment termination payment (ETP).
Your genuine redundancy payment is:
- tax-free up to a limit depending 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 of a genuine redundancy is not part of your ETP. Your employer will report any lump sum amounts on your income statement or PAYG payment summary – individual non-business.
Any amount over the tax-free limit is part of your ETP.
Non-genuine redundancy
A non-genuine redundancy occurs when as an employee:
- your dismissal is because you reach normal retirement age
- you're age pension age or older on the day of dismissal
- you're leaving voluntarily
- you're leaving on termination of your contract
- your dismissal is for disciplinary or inefficiency reasons.
You pay tax on a non-genuine redundancy as part of your ETP. This means you generally pay tax at a lower rate than your normal income, if the payment doesn't exceed certain caps.
Amounts you include from a genuine 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'.
Any payments that meet the conditions of a genuine redundancy are tax-free up to a limit, depending on your years of service with your employer.
The tax-free limit is a whole dollar amount plus an amount for each year of service you complete 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.
Amounts you exclude from a genuine redundancy
You need to exclude the following payments from 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.