The Tax-Free Part of a Redundancy, and the Part That Is Not
A genuine redundancy payment is taxed in two parts. A tax-free amount is calculated from a base figure plus an amount for each completed year of service, and anything above that is an employment termination payment taxed at concessional rates up to a cap. For someone made redundant at 60 after a long career, the tax-free component can be a substantial share of the payment.
- The answer: The tax-free limit is a base amount plus a set amount for each completed year of service. Amounts above it are an employment termination payment.
- The trap: The concession applies only to a genuine redundancy. A payment on resignation, on reaching an agreed retirement age, or where you were going to leave anyway, does not qualify.
- The recommendation: Check the payment summary categorises the amounts correctly. The split between redundancy, ETP, unused leave and ordinary pay decides the tax and is frequently wrong.
Where the AI summary above gets this wrong
"Redundancy payments are tax-free in Australia."
That's surface-true. Here's what it misses:
- Only part of it is, and the part depends on your service — The tax-free limit is a base amount plus a set amount per completed year of service. A short-service redundancy has a small tax-free component.
- It has to be a genuine redundancy — Where the position still exists, where you resigned, or where you had reached an agreed retirement age, the concession does not apply and the whole payment is an ETP.
01 What makes a redundancy genuine
A genuine redundancy is one where the position itself is abolished — the employer no longer requires the job to be done by anyone. It is about the role rather than the person, and it is the condition the tax concession turns on.
Resignation, dismissal for cause, and retirement at an agreed age do not qualify. Nor does a payment made where you had already given notice, because the employment was ending regardless.
There is also an age condition: the concession applies where the dismissal happens before the age at which the employment would have terminated anyway, which for most people means before 65.
02 How the payment splits
The tax-free limit is a base amount plus a set amount for each completed year of service, both indexed annually. Nothing within that limit is taxed and it is not included in assessable income at all.
The excess is an employment termination payment, taxed at concessional rates up to a cap and at the top marginal rate above it. The rate depends on whether you have reached preservation age.
Unused annual leave and long service leave are taxed separately again, at their own rates, and are not part of either the tax-free redundancy amount or the ETP. They are the component most often miscategorised on a payment summary.
Shows: the tax-free portion of a genuine redundancy payment from your years of service, and the amount left as an employment termination payment. Ignores: unused leave, which is taxed separately, the ETP cap and the rate that applies above it, and the Medicare levy.
03 What to do with it
A concessional contribution in the same year is the most reliable way to reduce the tax on the taxable portion, and unused carry-forward cap can make that contribution much larger than the annual cap — see the catch-up contributions guide.
An ETP cannot be rolled into super directly. It has to be received, taxed, and then contributed as an ordinary contribution, subject to the ordinary caps and the notice of intent requirement.
And the payment counts as a liquid asset for Centrelink purposes, which lengthens the waiting period before a JobSeeker claim is paid — the interaction is in the JobSeeker reference.
Check the payment summary before you spend anything. The split between genuine redundancy, ETP, unused leave and ordinary pay decides the tax, and payroll gets it wrong often enough that it is worth an hour. Correcting it afterwards is an amendment; getting it right first is a phone call.
FAQ
How is a redundancy payment taxed?
A genuine redundancy has a tax-free amount equal to a base figure plus a set amount for each completed year of service. The excess is an employment termination payment taxed at concessional rates up to a cap, and unused leave is taxed separately again.
What makes a redundancy genuine for tax purposes?
The position itself must be abolished — the employer no longer needs the job done by anyone — and the dismissal must happen before the age at which the employment would have terminated anyway.
Can I roll a redundancy payment into super?
Not directly. An employment termination payment must be received and taxed, then contributed as an ordinary contribution subject to the usual caps and, for a deduction, a notice of intent.
Sources
Regulator references
- ATO — Tax rates: Australian resident · Australian Taxation Office · 2026The resident marginal rate scale by income year, excluding the Medicare levy.Last verified: 2026-09-07
- ATO — Payments from super (rates and thresholds) · Australian Taxation Office · 2026The low-rate cap, the untaxed plan cap and the super lump sum tax table.Last verified: 2026-09-07
Calculator unit tests · the assertions this page's worked example is checked against, and their last result
Changelog
- 2026-09-07 — initial publish (new format)
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Jordan Reeves
Founder of Talk Through Wealth. A software engineer for over a decade before turning to retirement planning, Jordan built the projection engine after watching family members get fragmented, country-by-country advice that never reconciled. He writes about retirement the way the engine computes it: month-by-month, lifetime-long, and skeptical of any rule of thumb that hasn't been run through the math.