How a redundancy payout is taxed in Australia
A redundancy payout looks like one lump sum, but the tax office sees several different payments, each taxed its own way. That's why two people with the same headline figure can keep very different amounts. Here's how the pieces fit together.
What you're entitled to
Under the National Employment Standards, redundancy pay is based on your years of continuous service, on a sliding scale from 4 weeks (at one year) up to 16 weeks (at nine to ten years). One quirk catches people out: at ten or more years it drops back to 12 weeks, because long service leave is assumed to fill the gap. Your award, enterprise agreement or contract can be more generous than the NES — always the higher figure applies. Small businesses with fewer than 15 employees are generally exempt from NES redundancy pay, though an award may still require it. You're usually also owed notice (or pay in lieu) and any unused leave on top.
The tax-free shelter
If your redundancy is genuine — your role is abolished, not just you being let go — a chunk of the redundancy payment is completely tax-free. For 2025-26 that's a base amount plus a set amount for every completed year of service. The longer you've been there, the bigger the shelter, and for many people with modest payouts the entire redundancy payment falls under the limit and is tax-free.
The ETP, and everything else
Anything above the tax-free limit becomes an Employment Termination Payment (ETP), taxed at a concessional flat rate (lower once you're 60 or older) up to a cap, then at the top marginal rate above it. Unused annual leave paid out on a genuine redundancy is taxed at its own concessional flat rate. Payment in lieu of notice is generally treated as part of the ETP. Each of these is handled separately in the calculator above.
| Salary $95,000 · 6 years' service · 11 weeks redundancy | $20,096 |
| Tax-free limit: $13,100 + (6 × $6,552) | $52,412 |
| Redundancy within the tax-free limit | Tax-free |
| Unused leave (4 weeks), taxed ~32% | taxed |
| Net in hand | see your result |
Before you sign anything
- Ask for written confirmation that it's a genuine redundancy — it determines whether the tax-free shelter applies.
- Check your award or agreement for redundancy terms better than the NES.
- Consider timing. If you're close to completing another year, a slightly later termination date can lift your tax-free limit.
- Remember the payout counts as income for things like HELP/HECS repayments and Centrelink waiting periods.