How Redundancy Is Taxed in FY 2026–27

A genuine redundancy is tax-free up to $13,598 plus $6,801 per completed year of service. Anything above that is an employment termination payment taxed at 32% (17% from preservation age) — and for most people at ordinary salaries, the answer is simply no tax at all.

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The three layers of redundancy tax

Layer 1 — the tax-free amount. If your redundancy is genuine (your role was abolished, you're under age-pension age), the first $13,598 + $6,801 × completed years is free of tax entirely. It isn't assessable income, it doesn't push your other income into a higher bracket, and it doesn't count for Medicare levy surcharge thresholds.

Layer 2 — the taxable ETP. The excess over the tax-free limit is an employment termination payment. Up to the $270,000 ETP cap it is withheld at 32% if you're under preservation age (60), or 17% if you've reached it — both including Medicare.

Layer 3 — above the cap. Beyond the ETP cap, withholding jumps to the top rate of 47%. For non-genuine redundancies the cap is harsher: the $180,000 whole-of-income cap, reduced by every other taxable dollar you've received that year.

Worked example 1: entirely tax-free

$93,600 salary ($1,800/week), 7 completed years, age 44. NES entitlement: 13 weeks = $23,400. Tax-free limit: $61,205. The whole payment fits inside the limit — tax on redundancy: $0. This is the typical outcome for ordinary salaries.

Worked example 2: over the limit, under 60

$124,800 salary, 12 completed years, age 52, with an ex-gratia top-up of $100,000. Gross: $128,800. Tax-free limit: $95,210. Taxable ETP: $33,590 × 32% = $10,749. Net: $118,051.

Worked example 3: same package at 61

Identical numbers but age 61 — past preservation age. The same $33,590 excess is withheld at 17% instead: $5,710, saving $5,039 compared with the 52-year-old. Age at the end of the income year is what counts.

Frequently asked questions

What is the redundancy tax-free limit for FY 2026–27?

$13,598 plus $6,801 for each completed year of service. Seven completed years, for example, makes $61,205 of a genuine redundancy payment completely tax-free — it doesn't even appear in your assessable income.

What tax rate applies above the tax-free limit?

The excess is an employment termination payment: 32% withholding under preservation age (60), 17% at or over it, up to the $270,000 ETP cap — then 47% beyond the cap. All rates include Medicare.

Does redundancy pay count toward my taxable income for the year?

The tax-free component does not — it is entirely outside your assessable income and does not affect your marginal rate on other income. The taxable ETP component does count: it is included in your assessable income for the year, but a tax offset caps the tax on it at the ETP rate (so it is not taxed at your marginal rate). Because it is part of your taxable income, more income later in the year can raise the tax on it, and a large one can bring Division 293 tax into play for that year.

What if I am over 67 when made redundant?

At or over age-pension age the payment cannot be a genuine redundancy for tax purposes: there is no tax-free amount and the whole payment is an ordinary ETP subject to the whole-of-income cap. The Fair Work redundancy weeks themselves are unchanged.

How is my unused annual leave taxed on redundancy?

At a flat 32% when the termination is a genuine redundancy — often less than your marginal rate. On an ordinary resignation the same leave would be taxed at marginal rates instead.

Related

Sources

Figures on this page come from the following primary sources. The date is when we last checked the page against the source.

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.