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. 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 the 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 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. The age pension age from 1 July 2021 is 66 years and 6 months old (previously 66 years old between 1 July 2019 and 30 June 2021).
This change applies to payments made to employees who are dismissed or retire on or after 1 July 2019.
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.
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.
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.