Genuine Redundancy vs ETP: What Stays Tax-Free? (Australia 2025-26)
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Primary tax-year context: 2025-26
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General information only. Speak with a registered tax agent for advice.
People often use “redundancy payout” as if the whole payment is taxed one way. That is not how the rules work.
The ATO distinguishes between the tax-free part of a genuine redundancy payment, the employment termination payment (ETP) part above the limit, and other termination amounts such as unused leave that sit outside the redundancy concession.
What makes a redundancy “genuine”?
The ATO says a genuine redundancy payment arises where your job is abolished and you no longer have a job because the employer has decided the role no longer exists.
That is narrower than a normal termination. A payment is not treated as a genuine redundancy just because employment ended and a lump sum was paid.
What can be included in a genuine redundancy payment?
ATO guidance says the genuine redundancy amount may include items such as:
- payment in lieu of notice
- severance based on years of service
- a gratuity or “golden handshake”
But the concession only applies up to the relevant tax-free limit, which is indexed and depends on your completed years of service with that employer.
What is excluded from the tax-free redundancy amount?
This is where many people misread the numbers on termination.
The ATO says you exclude amounts such as:
- salary, wages, and allowances already earned
- unused annual leave and leave loading
- unused long service leave paid on termination
- payments made in lieu of superannuation benefits
Those amounts may still have special tax treatment, but they are not part of the genuine redundancy tax-free amount.
What happens above the tax-free limit?
The ATO position is that any part of a genuine redundancy payment above the tax-free limit becomes an ETP.
That excess is not treated the same way as the tax-free component. It moves into the ETP rules and can be concessionally taxed only up to the relevant cap.
Why the ETP label matters
ATO guidance on ETPs says the taxable component can be subject to:
- the ETP cap, or
- the smaller of the ETP cap and the whole-of-income cap, depending on the payment type
For genuine redundancy amounts that exceed the tax-free limit, the excess is an excluded payment, so the ETP cap is the relevant cap.
By contrast, non-genuine redundancy payments, severance pay, and some notice payments can fall into the non-excluded category and interact with the whole-of-income cap.
Practical reading of your payout
A redundancy package can contain several tax buckets at once:
- a tax-free genuine redundancy amount
- an ETP amount above the limit
- unused leave amounts
- ordinary salary and other termination entitlements
That is why the headline payout number is not enough. You need to understand the components.
Practical checklist
- Confirm whether the job was actually abolished
- Separate the genuine redundancy amount from unused leave and ordinary wages
- Check whether any excess over the tax-free redundancy limit has been treated as an ETP
- Review whether the payment summary or income statement codes match the payment type
- Run the figures before agreeing to timing or settlement assumptions
Sources (verified)
Run this before you rely on the payout summary
If the risk is “the total payout looks fine, but I do not know which pieces are tax-free, ETP, or leave”, split the package before you make any planning decision.
- Use the Redundancy/ETP Tax Calculator to estimate the genuine redundancy tax-free amount and the ETP amount above the limit.
- Use the Lump Sum Tax Calculator if the package also includes unused leave, long service leave, or other termination components outside the redundancy concession.