Any rates and information listed are current at the date of writing (July 2023) and may change.
Redundancy
When an employee is made redundant, employers may make certain lump sum payments (other than accrued entitlements such as annual leave, long service leave and sick leave) which qualify as genuine redundancy/approved early retirement scheme payments. If these lump sum payments satisfy certain criteria they may attract concessional taxation treatment.
A portion of the lump sum payment may be excluded from assessable income and is based on the following formula (for the 2023/24 financial year):
$11,985 + ($5,994 x completed years of service).
This tax-free limit changes every year. This amount cannot be rolled over.
If a genuine redundancy/approved early retirement scheme payment is received which is in excess of the tax free amount, the excess is treated as an untaxed ‘employment termination payment’ (ETP). This amount must be taken as a lump sum (unless transitional rules apply). The ETP consists of the following components:
- A tax-free component comprising of Pre-July 1983 benefits and the invalidity segment. This tax free component is non-assessable and non-exempt (i.e. it is tax free).
- A taxable component consisting of the remainder of the ETP. The following table outlines how the taxable component is taxed:
