Tax redundancy
If you’re made redundant, you may receive a lump sum payout, but not all parts of that payout are taxed the same way.
You may receive:
- Unused annual or long service leave
- Payment in lieu of notice
- A severance payout
- Ex-gratia payments
If the redundancy is genuine, part of the payment may be tax-free. You must be under age 67 and your role must truly cease to exist.
Tax-free component
For 2025–26, the tax-free amount is:
$13,100 + $6,552 × years of service
Example: 10 years → $78,620 tax-free
Anything above this is taxed as an ETP.
ETP tax rates
- Under 60: taxed up to 30% (within the cap)
- 60 and over: taxed up to 15%
- Above the cap ($260,000 in 2025–26): taxed at 45%
- Whole-of-income cap may also apply
- Unused leave payments are taxed at 30% with a genuine redundancy, otherwise at marginal rates.
Strategies to reduce tax
You may be able to contribute part of your redundancy to super and claim a tax deduction. The catch-up rules allow you to use unused concessional cap space from the past five years if your total super balance was under $500,000 at the preceding 30 June.
Redundancy taxation is complex. Come see us so we can help you maximise what you keep.
Do you have questions about tax on redundancy payments?
Redundancy payments can come with significant tax consequences, and the way your payout is structured can make a substantial difference to how much you keep. Understanding what is tax free, how employment termination payments are taxed, and whether super contribution strategies are available is essential.
Before you accept or finalise a redundancy payout, speak with our team. We can review your payment components, confirm your eligibility for tax free treatment, and help you implement strategies to legally reduce tax and protect your financial position during this transition.
For practical and professional guidance across accounting, taxation, business advisory and financial planning, contact Stratogen Accounting. Based in Noosa, our experienced team of accountants and business advisors support clients throughout the Sunshine Coast and Australia-wide. From tax compliance and bookkeeping to strategic planning, risk management and long-term wealth creation, Stratogen is here to strengthen your financial position and support your success.