Understanding Your Redundancy Payout
Facing redundancy can be overwhelming. Alongside the emotional impact of job loss, many Australians are unsure how their redundancy payout will be taxed or how it affects their superannuation and government benefits.
Understanding the different components of your redundancy package is essential, as each part is treated differently for tax purposes.
What Makes Up a Redundancy Package?
A redundancy payout is not a single lump sum for tax purposes. Instead, it usually includes several components, such as:
- Genuine redundancy payment
- Unpaid salary and wages
- Payment in lieu of notice
- Unused annual leave
- Unused long service leave
- Employment termination payments (ETPs)
Each of these is taxed differently, so it’s important to understand how they apply to your situation.
Genuine Redundancy Payments Explained
A genuine redundancy occurs when your employer decides your role is no longer required and terminates your employment.
One key benefit is that part of a genuine redundancy payment may be tax-free, up to a set limit.
2025–2026 Tax-Free Threshold
For the 2025–2026 financial year, the tax-free limit is:
- $13,100 (base amount)
- Plus $6,552 for each completed year of service
Any amount above this threshold is typically treated as an employment termination payment (ETP) and taxed separately from your regular income.
What Is Not Included in Genuine Redundancy?
Not all payments in your redundancy package qualify for tax-free treatment.
The ATO excludes:
- Unpaid salary and wages
- Unused annual leave
- Unused long service leave
- Payments in lieu of superannuation
These amounts are taxed separately, often at different rates.
👉 Tip: Always request a detailed breakdown from your employer rather than assuming your entire payout is tax-free.
Superannuation and Redundancy
Superannuation treatment varies depending on the type of payment.
Super is usually paid on:
- Final salary and wages
- Commissions and bonuses (ordinary earnings)
- Payment in lieu of notice
Super is generally NOT paid on:
- Genuine redundancy payments
- Employment termination payments (ETPs)
- Unused leave entitlements
However, some awards or employment contracts may require additional super contributions, so check your agreement carefully.
Centrelink and JobSeeker Considerations
If you plan to apply for government support such as the Services Australia JobSeeker Payment, your redundancy payout may affect when payments begin.
You may face an income maintenance period, which can delay your eligibility.
You may also need to provide:
- An Employment Separation Certificate
- Details of your redundancy and leave payments
What You Should Do After Redundancy
To stay on top of your finances and avoid surprises:
- Request a full breakdown of your redundancy package
- Keep all termination and payroll documents
- Check your myGov income statement for accuracy
- Understand how each component is taxed
Being organised now can make tax time much easier.
Seek Professional Advice
Redundancy payments can have complex implications for:
- Tax
- Superannuation
- Cash flow
- Government benefits
Because every situation is different, it’s important to seek advice from a registered tax agent or financial adviser before making decisions.