Step one: is it actually a "genuine redundancy"?
The favourable tax treatment described on this page only applies to a genuine redundancy under the ATO's definition — which is narrower than how the word gets used at work. Three things need to be true:
- Your specific position is abolished. The employer no longer needs anyone doing that job — it's not just that you personally were let go and someone else was hired to replace you.
- Your employment is actually terminated, not just changed (an internal transfer or demotion isn't a redundancy).
- You're under your pension age at the time your employment ends.
If you resigned voluntarily, were dismissed for performance or conduct reasons, or your contract simply expired, that's not a genuine redundancy for tax purposes — different, generally less favourable, tax rules apply instead. If you're unsure whether your payout qualifies, that's worth confirming with your employer or a tax agent before you rely on the figures below.
Step two: work out your tax-free limit
Once a payment qualifies as a genuine redundancy, part of it is completely tax-free — no matter your income or tax bracket. The tax-free limit is a base amount plus an additional amount for every completed year of service, and the ATO indexes both figures every financial year.
| Financial year | Base amount | Per year of service | ETP cap |
|---|---|---|---|
| 2026–27 | $13,598 | $6,801 | $270,000 |
| 2025–26 | $13,100 | $6,552 | $260,000 |
So the formula is:
Tax-free limit = Base amount + (Per-year amount × completed years of service)
Only whole completed years of service count towards the per-year component — part years are rounded down. This tax-free amount doesn't even show up on your taxable income; it's excluded entirely.
Step three: how the rest is taxed (the ETP portion)
Anything above the tax-free limit becomes an employment termination payment (ETP), and it's taxed concessionally — meaning at a lower rate than your normal marginal tax rate — up to the ETP cap shown above.
| Portion | Tax treatment |
|---|---|
| Up to the tax-free limit | 0% |
| Above the limit, up to the ETP cap — under preservation age | 32% |
| Above the limit, up to the ETP cap — at or above preservation age | 17% |
| Above the ETP cap (or whole-of-income cap, if lower) | 47% |
Those 32% and 17% figures already include the Medicare levy component, per the ATO's PAYG withholding schedule for ETPs — so that's the actual rate withheld, not an extra you'll owe on top. Preservation age depends on your date of birth and is generally between 55 and 60.
For most people the ETP portion is withheld by the employer at the time of payment, and it's reported on an ETP payment summary rather than a normal payslip — it's treated separately from your regular income for tax purposes.
Worked example
Say you're made genuinely redundant in the 2026–27 financial year, you're 42 (well under preservation age), you've completed 8 years of service, and your total redundancy payout is $95,000.
- Tax-free limit: $13,598 + (8 × $6,801) = $13,598 + $54,408 = $68,006
- Taxable (ETP) portion: $95,000 − $68,006 = $26,994
- Tax withheld on the ETP portion (32%): $26,994 × 0.32 ≈ $8,638
- Estimated net payout: $95,000 − $8,638 ≈ $86,362
That's roughly a 9% effective tax rate on the whole payout — well below what the same amount would attract as ordinary income. This is a simplified estimate; it doesn't account for unused leave paid out alongside the redundancy (which is taxed separately, not as part of the ETP) or any other components in your final payslip.
Want to run your own numbers? Plug your years of service and weekly pay into the redundancy calculator below and it'll work out both your NES entitlement and this tax split automatically.
Questions people actually ask
Is redundancy pay tax-free in Australia?+
Only up to the ATO's limit — the first $13,598 plus $6,801 per completed year of service for 2026–27. Anything above that is taxed as an ETP, generally at 32% or 17%.
What tax rate applies to the ETP portion?+
32% if you're under preservation age, 17% if you're at or above it, up to the ETP cap. Above the cap, your top marginal rate applies instead.
What counts as a "genuine redundancy" for tax purposes?+
Your role has to be genuinely abolished, your employment has to end, and you have to be under pension age. Resigning, retiring, or being dismissed for conduct or performance don't qualify.
Do these limits change every year?+
Yes — the ATO indexes them annually, usually from 1 July. Always match the figures to the financial year your payment actually falls in.
General information only, based on ATO guidance current as of September 2026 — not personal tax advice. Figures are indexed annually and may change; confirm current-year amounts at ato.gov.au before relying on them, and speak with a registered tax agent about your specific situation.