If you are an employee
The payment types and tax treatment of each payment will depend on how your employment was terminated.
Some of the payments receive concessional tax treatment, up to certain limits called caps. These payments are separately recorded on your payment summary and on your tax return.
Ways you can leave your job include:
When you resign, you generally make a decision to leave your job, and your job or position is not abolished. This means payments you receive will not be regarded as redundancy payments and won’t qualify for the genuine redundancy tax concessions.
When you resign, your employer will pay your salary and wage income owed, and accrued leave.
If your employer pays you a gratuity or similar payment, that gratuity or payment will be taxed as an employment termination payment.
Age retirement means you have reached your retirement age and have decided to leave the workforce. When you leave, your employer will pay your salary and wage income owed, and accrued leave. If your employer pays you a gratuity or similar payment, that gratuity or payment will be taxed as an employment termination payment.
Age retirement generally gives you access to your super.
Accessing your super benefits
A redundancy can be genuine or non-genuine.
A genuine redundancy payment is a payment you receive because the job you were doing is abolished – that is, your employer has made a decision that the job you are doing no longer exists, and your employment is to be terminated.
A genuine redundancy has a special tax treatment under the tax law where an amount paid up to a limit is tax free. If your redundancy does not meet the definition of genuine redundancy, then it will be taxed under the normal employment termination payment rules.
A non-genuine redundancy occurs when:
- you are dismissed because you reach normal retirement age
- you left voluntarily
- your contract is terminated
- you were dismissed because of disciplinary or inefficiency reasons.
You can check the taxation ruling to determine if the payment is a genuine redundancy Taxation Ruling TR 2009/2 Income tax: genuine redundancy payments
Dismissal is the involuntary termination of an employee. It is the employer's decision that the employment will end, rather than the employee's decision to leave.
Provided that it is ultimately the employer's decision to cease employment, a dismissal can still occur when the employer offers a redundancy package to an employee to either:
- minimise disruption to other employees
- comply with industrial relation laws or a workplace agreement.
A redundancy is still considered genuine if the employer seeks expressions of interest from their employees before they decide which employee to dismiss.
A dismissal may be a constructive dismissal if the employer places an employee in a position where there is little choice but to resign – for example, when the employer offers their employee any of the following:
- the choice between a package and another job that is different to their qualifications and experience
- a reduction in their pay
- dismissal without the benefits of a package.
Death of an employee
You may receive a termination payment following the death of an employee – these are called death benefit ETPs.
For information about the tax treatment of a payment you have received following the death of an employee, see Death benefit ETP.