Being made redundant often comes with a lump sum payout. While this can provide valuable financial support, it’s important to understand how the payment is taxed. Not all components are taxed the same way, and the tax treatment can significantly affect how much you actually take home.
What’s Included in a Redundancy Payout?
When your role is terminated, your final payment may include:
Some of these are taxed as ordinary income, while others receive concessional tax treatment. If your redundancy qualifies as a genuine redundancy, part of the payout may even be tax-free.
What Is a Genuine Redundancy?
A redundancy is considered genuine if:
Dismissal for poor performance or voluntary resignation does not qualify as a genuine redundancy.
Tax-Free Threshold for Genuine Redundancy
If your redundancy is genuine, part of your payout is tax-free.
For the 2025–26 financial year, the tax-free limit is:
📌 Example: If you worked 10 years, your tax-free amount is:
$13,100 + ($6,552 × 10) = $78,620
Any amount above this threshold may be taxed as an Employment Termination Payment (ETP).
How Are Employment Termination Payments (ETPs) Taxed?
ETPs include payments such as severance pay, golden handshakes, or unused sick leave. The tax rate depends on your age and how much you receive:
⚠️ Note: A whole-of-income cap also applies to high earners, limiting how much can be taxed concessionally.
How Unused Leave Is Taxed
Unused leave entitlements are taxed differently depending on the type of termination:
Reducing Tax on Redundancy Payments
There are strategies to help reduce the tax burden:
This approach can lower the taxable portion of your redundancy while boosting your retirement savings.
Key Takeaway
Redundancy payments are complex, with different tax treatments applying to each component. Understanding the rules – and using strategies such as super contributions – can help you minimise tax and keep more of your payout.
If you’re facing redundancy, speak with us before making decisions. We can guide you through your options, help reduce tax, and ensure you make the most of your redundancy payment.
Tommy Li, CA
Director, Verity Advisory | Registered Tax Agent | Authorised Financial Adviser (ASIC Rep No. 1261831) | Member, Chartered Accountants Australia & New Zealand
Tommy is a Chartered Accountant with 20+ years advising medical professionals on tax, financial structure and practice decisions. He founded Verity Advisory to provide integrated advice for doctors at career-defining financial inflection points — combining tax, lending and financial planning into a single structured approach.
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