Redundancy Payment and Your Taxes

Estimated reading time: 6 minutes

What is a Redundancy Payment?

A redundancy payment, often referred to as an Employment Termination Payment (ETP), is a lump sum amount paid to an employee after being made redundant.

There are a few different types of redundancy payments, and each one can affect your redundancy payment tax differently.

For tax purposes, an Employment Termination Payment may include:

1. Severance pay (usually a number of weeks’ pay based on the duration of your employment).
2. A ‘golden handshake’ or one-off goodbye payment.
3. Payment in lieu of notice.

Some payments are not considered part of your redundancy payment, including: 

1. Back-pay or money owed to you for work you’ve done.
2. Payouts of leave loading or accrued annual leave.
3. Payments made instead of superannuation benefits.
4. Payouts for unused long service leave.

Important details about redundancy payments:

• The ATO says the payment must generally be received within 12 months of stopping work, or else it is not treated as a redundancy payment. (There are some exceptions to that, and a tax agent can help sort them out).
• You might not be able to put your ETP into a superannuation account.

What is a ‘Genuine’ Redundancy

Whether your payment qualifies as a genuine redundancy affects how much tax you’ll pay. Some or all of the payment may be tax free if it meets the ATO’s genuine redundancy rules. The ETP must relate to when an employee’s position is genuinely made redundant.

A genuine redundancy often occurs when:

• Your employer dismissed you.
• The dismissal is genuinely caused by the position becoming redundant.
• Your employer made the ETP because of the redundancy.
• The employment relationship ended completely (for example, the employer cannot terminate your job and later rehire you).
• The redundant role is not re-filled by another person.

ETP Tax: What you need to know

If you’ve received a genuine redundancy payment, part or all of it may be tax free. The tax-free amount increases with each completed year of service, as shown in the table below:

Financial Year	Tax free amount	Tax free amount for each year of service
2026–27	$13,598	$6,801
2025–26	$13,100	$6,552
2024–25	$12,524	$6,264
2023–24	$11,985	$5,994
2022–23	$11,591	$5,797
2021–22	$11,341	$5,672
2020–21	$10,989	$5,496

If your total genuine redundancy payment is less than the tax-free amount listed above, you won’t pay any tax on the payment at all.

If you are:

• below the preservation age, you pay tax at 32% (+ Medicare Levy) on any excess amount above the tax-free component, up to $270,000.
• at or above the preservation age, you pay tax at 17% (+ Medicare Levy) on any excess amount above the tax-free component, up to $270,000.

At any age, you pay tax at the rate of 45% (+ Medicare Levy) for any amount above the ETP cap, which is $270,000 for 2026–27 (the cap usually changes each year).

Other Types of Lump Sum Payments

Lump sum payments and voluntary resignation

If you choose to resign from your current role, you may also receive a lump sum payment. This termination will not qualify as a ‘genuine’ redundancy (it doesn’t meet the criteria above), so you will pay tax on the full amount of the payment.

Retirement and Lump sum payments

When you retire, the tax obligations of any lump sum payment depend on your employment agreement and the type of payment you receive. Some employers offer early retirement schemes with special tax rules. If you’re also part of an Employee Share Scheme (ESS), check whether any ‘good leaver’ conditions apply. Ultimately, retirement payments can be complex, so it’s worth getting advice from your employer or tax agent before you retire.

How to enter a Redundancy Payment on your tax return

After redundancy, your employer must provide a summary for your ETP that includes details of your redundancy payment. Your employer should provide this summary within 14 days of your final workday.

At tax time, the Etax tax return makes it easy to include the figures from your ETP summary. Select the ‘Termination Payment’ option in the ‘My Income’ section. Just enter the figures from your ETP summary into the matching fields of the tax return. Don’t worry if you haven’t received a copy from your employer. Etax can securely access your Employment Termination Payment information directly from the ATO, just like your income statements.

If you need any help with a Redundancy Payment on your tax return, start a Live Chat or send your Etax Accountant a private message. Your accountant will make sure you know what to enter and where, or they can access the information and enter everything correctly for you at no extra cost.

---

Moving forward after redundancy

Losing a job can be a painful experience, and it’s something many Australians face each year. It can also become an opportunity for a fresh start. Read our Redundancy tips from a careers expert article to learn more.

Frequently asked questions