What Is a Genuine Redundancy Payment?

A genuine redundancy payment is money you receive from your employer because your job has been made redundant — meaning your position is genuinely eliminated, not simply replaced by another person. The ATO provides specific tax concessions for these payments to help ease the financial transition when you lose your job through no fault of your own.

To qualify for genuine redundancy treatment, your employer must be terminating your employment because they no longer require your role to be performed by anyone. This is different from resigning, being fired for misconduct, or retiring voluntarily. The ATO applies strict criteria to determine whether a payment qualifies as a genuine redundancy.

If your payment qualifies, a portion is entirely tax-free based on a formula set by the ATO each year. The remainder is treated as an Employment Termination Payment (ETP) and taxed at concessional rates, which are generally much lower than your marginal income tax rate.

FY 2025-26 Tax-Free Threshold for Genuine Redundancy

The ATO updates the tax-free thresholds for genuine redundancy payments each financial year. For FY 2025-26, the calculation is based on two components: a base amount and a service amount.

Your total tax-free amount is calculated as: Base Amount + (Service Amount × Completed Years of Service). Both the base amount and the service amount are indexed annually by the ATO in line with AWOTE (Average Weekly Ordinary Time Earnings).

For example, if you've worked for the same employer for 10 years and receive a $80,000 redundancy payment in FY 2025-26, your tax-free amount would be: $11,985 + ($5,994 × 10) = $71,925. Only the remaining $8,075 would be taxed as an ETP.

How the Taxable Portion Is Taxed (ETP Rules)

The portion of your redundancy payment that exceeds the tax-free threshold is classified as an Employment Termination Payment (ETP). ETPs are taxed at concessional rates, not your ordinary marginal tax rate.

If you're under your preservation age (typically under 55–60 depending on your birth year), the first $230,000 (the ETP cap for FY 2025-26) of the taxable component is taxed at a maximum of 30% plus Medicare Levy (2%), giving an effective rate of 32%. Amounts above the ETP cap are taxed at your marginal tax rate plus Medicare Levy.

If you're at or above preservation age, the first $230,000 of the taxable component is taxed at a maximum of 15% plus Medicare Levy (17% total), which is even more favourable. This lower rate recognises that older workers may have less time to rebuild their retirement savings after redundancy.

What Payments Count as Genuine Redundancy?

Not all payments you receive when leaving a job qualify as genuine redundancy. The ATO distinguishes between several types of termination payments, and only those meeting specific criteria receive the tax-free treatment.

Payments that qualify as genuine redundancy include: severance pay based on years of service, payment in lieu of notice (if specified in your award or agreement), and any additional gratuity or "golden handshake" directly related to the redundancy itself. Your employer must also follow the genuine redundancy requirements under the Fair Work Act.

Payments that do not qualify include: unused annual leave or long service leave (these are taxed separately as lump sum payments), payments received after voluntary resignation, retirement payments that aren't related to redundancy, and payments made because of a short-term contract ending. These are treated as ordinary income or other types of ETPs.

If you're unsure whether your situation qualifies, check with your employer's HR department or the ATO directly. Your employer should also issue you an Employment Separation Certificate and a PAYG Payment Summary that breaks down the components of your termination payment.

Redundancy and Your Superannuation

Receiving a genuine redundancy payment doesn't directly affect your superannuation, but it's important to understand how redundancy interacts with your super. Your employer must still pay the Superannuation Guarantee (12% for FY 2025-26) on your ordinary time earnings up until your employment ends.

However, the genuine redundancy payment itself is not subject to Superannuation Guarantee contributions. Your employer does not need to pay super on your redundancy payout. This is because SGC is calculated on ordinary time earnings, not on termination payments.

If you're aged 60 or over, any ETP you receive from your redundancy may be tax-free if you've met a condition of release (such as retirement) and the payment is from a super fund. For those under 60, it's worth considering whether to contribute some of your redundancy into super under the concessional contributions cap ($30,000 for FY 2025-26) to reduce your tax bill.

You may also be eligible to access your super early on compassionate grounds if you're experiencing severe financial hardship after redundancy. The ATO and your super fund can provide guidance on this option, though it should be considered carefully as accessing super early reduces your retirement savings.

How to Report Genuine Redundancy on Your Tax Return

When you lodge your annual tax return, reporting a genuine redundancy payment requires some extra attention. Your employer will provide you with a PAYG Payment Summary (or via myGov) that breaks down the components of your termination payment.

The genuine redundancy payment (both tax-free and taxable components) is reported in the Employment Termination Payment (ETP) section of your tax return, not as salary and wages. The tax-free component is shown separately and is excluded from your assessable income entirely.

Any unused annual leave and long service leave paid out on termination are reported as Lump Sum A and Lump Sum B respectively, with their own tax treatment. Lump Sum A receives a 32% tax offset, while Lump Sum B is taxed at a maximum of 30% (plus Medicare Levy) if certain conditions are met.

If you lodge through myTax, the system will guide you through the ETP section. However, it's often worth consulting a registered tax agent if your redundancy involves complex calculations, multiple components, or if you're considering investing part of the payout.

Frequently Asked Questions

How long do I need to work to get a genuine redundancy?

There is no minimum service period required to qualify for a genuine redundancy payment. However, the tax-free calculation uses your completed years of service, so longer-serving employees receive a higher tax-free amount. Even one year of service entitles you to the base amount plus the service amount for that one year.

Is redundancy pay taxed differently if I'm over 60?

Yes. If you're at or above preservation age (generally 55–60 depending on your birth year), the taxable component of your ETP is taxed at a maximum of 15% plus Medicare Levy (17% total), compared to 30% plus Medicare Levy (32%) for those under preservation age. If you're 60 or over and the payment is from a super fund, it may be entirely tax-free.

What happens to my HECS-HELP debt if I get made redundant?

Your HECS-HELP compulsory repayment is based on your repayment income for the financial year, which includes your salary, the taxable component of your ETP, and any other income. If your total repayment income is below the $67,000 threshold for FY 2025-26, you won't have to make a compulsory repayment. You can use the HECS-HELP repayment calculator to estimate your obligation.

Can I negotiate a higher redundancy payout?

Yes, redundancy packages are often negotiable, especially in senior roles. Some employers offer enhanced redundancy packages beyond the minimum required by the Fair Work Act or your enterprise agreement. However, only the amount that genuinely relates to the loss of your job qualifies for the tax-free treatment — any excess may be considered a "golden handshake" and taxed as an ETP.

Does a genuine redundancy affect Centrelink payments?

Yes, receiving a redundancy payment can affect your eligibility for Centrelink payments such as JobSeeker Payment or Age Pension. The tax-free component of your redundancy is assessed as income and may be subject to the income test and assets test. Centrelink applies a waiting period before you can receive payments depending on the amount of your redundancy.

How do I calculate my take-home pay from redundancy?

To understand the full picture of how redundancy impacts your finances, consider using the take-home pay calculator to see how your new situation (with or without a new job) compares to your previous income. You can also check the income tax rates page to see which bracket applies to the taxable portion of your redundancy.