A genuine redundancy payment in Australia has a tax-free component up to a limit set by the ATO each year. Amounts within this limit are completely exempt from income tax. Amounts above the limit are taxed at concessional rates (not your full marginal rate), and any further excess is taxed as ordinary income.
Key Takeaways
- The first portion of a genuine redundancy payment is tax-free up to the ATO limit
- FY2025–26 tax-free limit: $12,524 base + $6,264 per completed year of service
- The tax-free component is set automatically — you do not need to claim it
- Amounts above the tax-free limit are taxed at a concessional rate of 32% (or your marginal rate if lower)
- The employment must qualify as a genuine redundancy — not a dismissal or resignation
What Is a Genuine Redundancy?
The ATO defines a genuine redundancy as one where:
- Your job is no longer required to be performed by anyone
- The dismissal is not due to misconduct or performance
- The employer follows proper consultation procedures
A dismissal for poor performance, resignation, or a restructure where someone else takes your role does not qualify as a genuine redundancy. The tax concession is only available for genuine redundancies.
Tax-Free Component — FY2025–26
| Component | Amount (FY2025–26) |
|---|---|
| Base tax-free amount | $12,524 |
| Additional per completed year of service | $6,264 |
Example: 8 years of service Tax-free amount = $12,524 + (8 × $6,264) = $12,524 + $50,112 = $62,636 tax-free
Only completed years of service count. A partial final year does not count toward the per-year component.
These amounts are indexed annually by the ATO (using AWOTE — average weekly ordinary time earnings).
Tax on Amounts Above the Tax-Free Limit
Amounts above the tax-free limit are treated as an employment termination payment (ETP). There are two categories:
Within the ETP cap ($245,000 for FY2025–26)
Amounts within the ETP cap are taxed at:
- 32% if you are under 65 years old
- 17% if you are 65 or over
These are flat rates, regardless of your marginal rate — and the 2% Medicare levy is added on top. If your marginal tax rate is lower than the concessional rate, your marginal rate applies instead (the “tax on top” cannot exceed your marginal rate).
Above the ETP cap
Amounts above the $245,000 ETP cap are taxed at the top marginal rate (45% + Medicare levy).
What Else Is in the Payout?
A redundancy payout package often includes multiple components, each taxed differently:
| Component | Tax treatment |
|---|---|
| Genuine redundancy payment (within limit) | Tax-free |
| Genuine redundancy payment (above limit) | ETP — 32% concessional rate |
| Accrued annual leave | Taxed at marginal rate (not ETP) |
| Long service leave | Concessional — depends on accrual period |
| Notice period payment (worked or paid in lieu) | Ordinary income — full marginal rate |
| Normal salary for days worked | Ordinary income — full marginal rate |
This is why it matters to see the breakdown on your ETP payment summary — each component is treated differently.
Superannuation and Redundancy
Redundancy payments are generally not subject to the superannuation guarantee — your employer does not need to pay super on genuine redundancy payments or ETP components. Super continues to accrue on your ordinary time earnings up to the point your employment ends.
Frequently Asked Questions
How much of my redundancy payment is tax-free? The tax-free amount depends on your years of service. For FY2025–26: $12,524 + ($6,264 × completed years of service). After 10 years, the tax-free component is $75,164.
Do I need to declare my redundancy payment on my tax return? Yes. Your employer provides an ETP payment summary showing the taxable and tax-free components. You report this in your tax return. The tax-free component is excluded from assessable income.
Is voluntary redundancy taxed the same as involuntary redundancy? Yes, provided the redundancy meets the ATO’s genuine redundancy criteria — the key test is whether the position itself is no longer required. Both voluntary and involuntary redundancies can qualify.
What if I am over 65 when I am made redundant? The tax-free genuine redundancy amount does not apply to employees who have reached pension age (67 for most people). Instead, the entire payment is taxed as an ETP, but the 17% concessional rate applies to amounts within the cap (rather than the 32% rate for under-65s).
This article provides general tax information. Redundancy tax rules can be complex, particularly where employment spans multiple years or includes unusual components. For advice tailored to your situation, speak with a registered tax agent or accountant. Find one through the Tax Practitioners Board register.