The rates, by reason and service period
| Service the leave relates to | Genuine redundancy, invalidity or early retirement scheme | Resignation, dismissal or retirement |
|---|---|---|
| After 17 August 1993 | 32% | Marginal rates |
| 16 August 1978 to 17 August 1993 | 32% | 32% |
| Before 16 August 1978 | 5% of it taxed at marginal rates | 5% of it taxed at marginal rates |
The ATO treats voluntary resignation, dismissal for inefficiency and retirement as a "normal termination". For almost everyone working today all their leave relates to service after 17 August 1993, so the first row is the one that matters.
Resignation vs redundancy: does it change the tax?
It depends on your income. The redundancy rate is a flat 32%. The resignation rate is your marginal rate on the leave, added on top of your salary for the year. Take someone in NSW with 12 years' service and 10.4 weeks of long service leave:
| Weekly pay | Leave paid out | Tax if they resign | Tax if made redundant |
|---|---|---|---|
| $800 | $8,320 | $2,152 | $2,662 |
| $1,600 | $16,640 | $5,325 | $5,325 |
| $3,000 | $31,200 | $12,168 | $9,984 |
On lower incomes the marginal rate can be below 32%, so a resignation is taxed less. Around average incomes the two are close. On higher incomes the flat redundancy rate saves money. These are estimates: employers withhold using the ATO's annualising method, and the final tax is settled in your tax return.
How your employer works it out
- Your employer reports the leave through Single Touch Payroll as part of your final pay, and it appears on your income statement in myGov.
- Leave taxed at the flat rate appears as Lump sum A. Pre-1978 leave appears as Lump sum B.
- On a normal termination, post-1993 leave is withheld by spreading it across the year's pay periods (the annualising method), so withholding matches what your marginal rate is likely to be.
- For small post-1993 amounts under $300 on a normal termination, the employer withholds the lesser of the marginal-method amount and 32%.
Work out the amount first
The tax only matters once you know how many weeks you're owed, and that differs by state: 8⅔ weeks at 10 years in most states, 13 weeks in SA and the NT, and full entitlement at 7 years in Victoria and the ACT. The long service leave calculator works out the weeks and value under your state's law, and the final pay calculator applies the tax.
Frequently asked questions
Is long service leave taxed at 32%?
Only in some cases. Leave paid out on a genuine redundancy, invalidity or an approved early retirement scheme is withheld at a flat 32%. On a resignation, dismissal or retirement, leave for service after 17 August 1993 is taxed at your marginal rates, which can be higher or lower than 32%.
Is long service leave taxed when I take it, rather than cash it out?
Leave you take while still employed is paid as normal wages and taxed through your usual pay. The special termination rates on this page only apply to unused leave paid out when your job ends.
Does super get paid on long service leave paid out on termination?
No. Unused long service leave paid on termination is not qualifying earnings, so no 12% super guarantee applies, whatever the reason for leaving.
What are Lump sum A and Lump sum B on my income statement?
Lump sum A is unused leave taxed at the flat 32% rate, which covers leave paid on a genuine redundancy and leave for service from 16 August 1978 to 17 August 1993. Lump sum B is long service leave for service before 16 August 1978; only 5% of it is taxed, at your marginal rate. Leave for service after 17 August 1993 on a resignation is included with your ordinary income instead.
Is long service leave part of my tax-free redundancy amount?
No. The ATO excludes unused leave from a genuine redundancy payment. Long service leave is paid and taxed separately, even when the redundancy itself is tax-free.
Related
- Final pay calculator — applies these rates to your payout
- Pro-rata long service leave — when leaving early still pays
- Unused annual leave on termination
- How redundancy is taxed
Sources
Figures on this page come from the following primary sources. The date is when we last checked the page against the source.
- Schedule 7: tax table for unused leave payments on termination (ATO), checked 7 August 2026.
- Employment termination payments for employees (ATO), checked 24 September 2026.
- STP Phase 2: when an employee transfers or leaves (ATO), checked 24 September 2026.
- Genuine redundancy payments (ATO), checked 10 August 2026.
- What payments are qualifying earnings (ATO), checked 24 September 2026.
Independent guide — not a government service, and not financial, legal or tax advice.