Genuine redundancy
A genuine redundancy payment is a payment made to you as an employee if your job is abolished and you no longer have a job. This means your employer has made a decision that your job no longer exists, and your employment is to be terminated.
Redundancy payments are a type of employment termination payment (ETP).
Your genuine redundancy payment is:
- tax-free up to a limit depending on your years of service
- concessionally taxed as an employment termination payment (ETP) above your tax-free limit
- taxed at your usual marginal tax rate for any amount above certain caps.
The tax-free amount of a genuine redundancy is not part of your ETP. Your employer will report any lump sum amounts on your income statement or PAYG payment summary – individual non-business.
Any amount over the tax-free limit is part of your ETP.
Changes to genuine redundancy and early retirement scheme payments
On 29 October 2019, changes to the age employees can access concessional tax treatment for genuine redundancy and early retirement scheme payments became law. The age-based limit of 65 years old has changed to the age pension age. You can check the age pension ageExternal Link on the Services Australia website.
This change applies to payments made to employees who are dismissed or retire on or after 1 July 2019.
Non-genuine redundancy
A non-genuine redundancy occurs when as an employee:
- your dismissal is because you reach normal retirement age
- you're age pension age or older on the day of dismissal
- you're leaving voluntarily
- you're leaving on termination of your contract
- your dismissal is for disciplinary or inefficiency reasons.
You pay tax on a non-genuine redundancy as part of your ETP. This means you generally pay tax at a lower rate than your normal income, if the payment doesn't exceed certain caps.
Amounts you include from a genuine redundancy
Depending on your employment conditions, a genuine redundancy payment may include:
- payment in lieu of notice
- severance payment of a number of weeks' pay for each year of service
- a gratuity or 'golden handshake'.
Any payments that meet the conditions of a genuine redundancy are tax-free up to a limit, depending on your years of service with your employer.
The tax-free limit is a whole dollar amount plus an amount for each year of service you complete in your period of employment with your employer. Indexation changes the tax-free limit on 1 July each year.
Your employer will report the tax-free amount as a lump sum on your income statement or PAYG payment summary – individual non-business.
Amounts you exclude from a genuine redundancy
You need to exclude the following payments from a genuine redundancy payment:
- salary, wages or allowances owing to you for work done or leave already taken for work completed
- lump sum payments of unused annual leave or leave loading paid on termination of employment
- lump sum payments of unused long service leave paid on termination of employment under a formal arrangement
- payments made in lieu of superannuation benefits.