Understanding your redundancy payout
If you're facing redundancy, the stress of job loss can be compounded by uncertainty about how your final payout will be taxed and what happens to your superannuation.
Understanding the different components of your redundancy package is crucial, as each part may be treated differently for tax purposes.
What makes up your redundancy package?
A redundancy package is rarely a single payment for tax purposes. Your final payout may include several components that are taxed differently, including:
Genuine redundancy payment
Unpaid salary and wages
Payment in lieu of notice
Unused annual leave
Unused long service leave
Employment termination payments (ETPs)
Genuine redundancy payments
A genuine redundancy occurs when your employer decides your job no longer exists and terminates your employment as a result.
If your payment qualifies as a genuine redundancy, part of it may be tax-free, up to an indexed limit that’s made up of a base amount plus an amount for each completed year of service.
For 2025–2026, the tax-free limit is $13,100 plus $6,552 for each completed year of service.
Any amount above this limit is generally treated as an ETP and taxed under different rules from your normal salary and wages.
What's excluded from genuine redundancy treatment
Not all amounts in your package qualify for genuine redundancy treatment. The ATO excludes amounts such as:
Unpaid salary and wages
Unused annual leave
Unused long service leave
Payments made in lieu of superannuation benefits
These amounts are taxed and reported separately, so it's important to ask your employer for a clear breakdown rather than assuming the entire package receives the same tax treatment.
Superannuation implications
Super guarantee contributions are payable on your final salary and wage amounts, and any commissions and bonuses that are part of your ordinary earnings.
If your employer pays you out for the notice period instead of having you work it (known as “payment in lieu of notice”), this also attracts super.
Generally, you won’t get super on:
ETPs
Your genuine redundancy payment
Amounts paid out for your unused annual leave
Long service leave
Personal/sick leave
The super treatment can be a little different if you’re employed under an Award or agreement. Sometimes industrial agreements or employment contracts include conditions that require your employer to pay super on more components of your redundancy package.Centrelink considerations
If you may need to claim a JobSeeker Payment, timing matters.
Redundancy and leave payments can create an income maintenance period, which may delay when your first payment starts.
Services Australia indicates that waiting periods can apply, and an Employment Separation Certificate may be required to assess your eligibility.
What you should do
Ask your employer for a detailed breakdown that shows each component of your termination payment
Keep all separation paperwork and compare it with what appears in myGov and your income statement
This preparation can make tax time easier and help you understand any Centrelink waiting periods.
Seek professional advice
Because redundancy can have flow-on effects for tax, super, cash flow and government payments, this is an area where general information only goes so far.
The rules are detailed, and your package may be complex.
Contact our team to discuss your specific circumstances before making any decisions.