Your tax-free limit by years of service (FY 2026–27)
| Completed years | Tax-free limit |
|---|---|
| 1 | $20,399 |
| 3 | $34,001 |
| 5 | $47,603 |
| 7 | $61,205 |
| 10 | $81,608 |
| 15 | $115,613 |
| 20 | $149,618 |
The limit indexes each 1 July with average earnings, so it rises most years. Compare it with your actual package: NES redundancy pay peaks at 16 weeks of base pay, so even generous packages with ex-gratia top-ups usually sit inside the limit until service is long and pay is high.
The three conditions
- Genuine redundancy — the job itself is abolished, not you replaced.
- Under age-pension age — dismissal before 67. At or over it, the whole payment is an ordinary ETP with no tax-free slice.
- Within the limit — the excess above your limit is taxed at ETP rates: 32% under preservation age (60), 17% at or over, 47% above the $270,000 cap.
Watch the fine print
Unused annual leave and long service leave are not part of the tax-free amount — they're withheld separately at a flat 32% on a genuine redundancy. And the tax-free limit counts completed years: 9 years 11 months is 9 for this purpose.
Frequently asked questions
Is redundancy pay tax free?
Up to a limit, yes. For a genuine redundancy in FY 2026–27 the first $13,598 plus $6,801 per completed year of service is completely tax-free. A 7-year employee's limit is $61,205 — more than most redundancy packages, which is why most people pay nothing.
When is redundancy pay NOT tax free?
When it isn't a genuine redundancy: you were dismissed and replaced rather than the role abolished, you were at or over age-pension age (67) on dismissal, or the amount exceeds the tax-free limit. In those cases ETP tax rates apply to the taxable part.
Do I pay the Medicare levy on redundancy pay?
Not on the tax-free component — it is entirely outside assessable income. The ETP withholding rates on any excess (32%/17%/47%) already include the Medicare levy.
Does the tax-free amount use completed years or total years?
Completed years only. 9 years and 11 months counts as 9 — worth $6,801 less than a completed 10th year. If your termination date is negotiable and near an anniversary, the timing matters.
Is voluntary redundancy tax free too?
Usually yes — accepting a voluntary redundancy under a program where the role is genuinely abolished still qualifies as a genuine redundancy for the tax-free limit, subject to the same age and dismissal conditions.
Related
- Redundancy tax in full — ETP caps, rates and worked examples
- What makes a redundancy genuine — the two tests
- How age changes a redundancy payout
- Redundancy payout calculator
Sources
Figures on this page come from the following primary sources. The date is when we last checked the page against the source.
- Genuine redundancy payments (ATO), checked 10 August 2026.
- Key superannuation rates and thresholds: employment termination payments (ATO), checked 7 August 2026.
- Schedule 11: tax table for employment termination payments (ATO), checked 7 August 2026.
Figures current for FY 2026–27, verified 2026-08-07 against ATO sources. Independent guide — not a government service, and not financial, legal or tax advice.