How Redundancy Pay Is Taxed in Australia

Redundancy pay is not taxed the same way as your ordinary wages, which is why people often get confused when they look at the final payout. Some of it may be tax-free. Some of it may be treated as an employment termination payment. Other bits, like unused leave, can be taxed differently again.

The short version is this: genuine redundancy payments get concessional tax treatment, but not every dollar in your final pay packet is a genuine redundancy payment.

What is usually tax-free?

A genuine redundancy payment usually includes a tax-free base amount plus an additional amount based on each completed year of service. That’s why long-serving employees often have a larger tax-free component.

If your payment falls within that tax-free threshold, that portion is not taxed and not included in your assessable income.

What gets taxed?

Anything above the tax-free threshold is generally treated as an employment termination payment (ETP). That part can still receive concessional tax treatment compared with normal salary, but it is not fully tax-free.

Unused annual leave and long service leave are usually taxed under their own rules, which is why the payslip can look like a mess.

Important: A final payout can include redundancy pay, notice pay, unused leave, and other balances. They are not all taxed the same way.

Common mistake

The biggest mistake is assuming the entire payout is either fully taxable or fully tax-free. It’s usually a mix.

FAQs

Is redundancy pay tax-free in Australia?

Part of a genuine redundancy payment can be tax-free, but not necessarily the whole amount.

Is unused annual leave taxed the same way?

No. Leave payments usually have their own tax treatment.

Should I rely on payroll alone?

Payroll is often right, but if the amount is material, it’s worth checking with an accountant or tax adviser.