Is a voluntary redundancy still "genuine"?
Usually, yes. The ATO says a redundancy is still genuine if the employer asks for expressions of interest before deciding who to dismiss. What matters is that your position is abolished and the final decision to end your employment stays with the employer. Volunteering is fine; deciding to leave on your own is not.
- Genuine: the employer calls for volunteers, you apply, and the employer accepts and dismisses you because your role is no longer needed.
- Not genuine: you resign, retire, or leave by your own decision, even if you get a farewell payment.
The other conditions still apply: you must be under age-pension age when dismissed, the payment must be more than you would have received by resigning, and if you and your employer aren't dealing at arm's length (a family business, say), any amount above a normal arm's-length payment disqualifies the whole payment from the concession.
How the top-up is taxed
On a genuine redundancy, the NES amount and any ex gratia top-up are added together as one genuine redundancy payment:
- The first $13,598 + $6,801 × completed years is tax-free, and doesn't count as assessable income.
- The excess is an employment termination payment, withheld at 32% under preservation age or 17% at or over it, up to the $270,000 ETP cap.
- Anything above the cap is taxed at 47%.
Unused annual leave and long service leave are never part of the redundancy payment. They are paid separately and taxed under their own rules.
Worked example: a voluntary redundancy package
A 55-year-old on $1,700 a week takes voluntary redundancy after 15 years. The NES gives 12 weeks ($20,400), and the employer adds an ex gratia top-up of $60,000.
- Total redundancy payment: $80,400
- Tax-free limit at 15 years: $115,613
- Taxable part: $0, tax $0
- Net: $80,400
If the top-up were $120,000 instead, the payment of $140,400 would go $24,787 over the limit, taxed at 32%: $7,932.
The same money, paid when it isn't genuine
Suppose the same $80,400 were paid on a resignation or a negotiated exit, with $50,000 of salary already received that year. There is no tax-free amount: it is all a non-genuine ETP, capped by the smaller of the ETP cap and the $180,000 whole-of-income cap less other taxable income. The tax would be $25,728 instead of $0.
Before you accept an offer
- Get the offer in writing, itemised: NES redundancy, ex gratia top-up, notice or pay in lieu, and leave.
- Check the letter says your position is being made redundant and the employer is ending your employment. Language suggesting you are resigning can cost you the tax-free amount.
- Check your age. If you'll be at or over age-pension age when dismissed, there's no tax-free amount.
- Check your long service leave: redundancy triggers pro-rata leave in every state once you pass the threshold.
- Run the numbers in the redundancy calculator, which has an ex gratia field.
Early retirement schemes
A payment under an ATO-approved early retirement scheme gets the same tax-free limit as a genuine redundancy. The scheme must be approved by the ATO, offered to broad groups of employees (for example everyone over a certain age or with a particular skill), and be part of a plan to reorganise the business. If your employer calls an offer an "early retirement scheme", ask whether it has an ATO class ruling.
Frequently asked questions
Is voluntary redundancy taxed differently from forced redundancy?
No, as long as it is still a genuine redundancy: your position is abolished and your employer makes the final decision to dismiss you. Putting your hand up when the employer asks for volunteers doesn't change that. Resigning, on the other hand, is not a redundancy at all.
What is an ex gratia payment?
A payment your employer makes beyond what the law, award or contract requires, often called a top-up, golden handshake or gratuity. On a genuine redundancy it is part of the redundancy payment and shares the same tax-free limit. Otherwise it is an employment termination payment taxed under the stricter whole-of-income cap.
Is severance pay the same as redundancy pay?
In Australia the terms overlap. "Severance" usually means weeks of pay for each year of service. If it is paid because of a genuine redundancy, it is tax-free up to the limit. If it is paid on any other termination (for example a negotiated exit), it is an ordinary employment termination payment.
Does super get paid on an ex gratia payment?
No. Redundancy pay, severance and gratuities are not qualifying earnings, so the employer pays no super guarantee on them. Only pay in lieu of notice attracts super.
Can I take the voluntary redundancy and start a new job straight away?
Yes. Starting a new job doesn't change the tax on the redundancy, though a large taxable component plus a full year of new salary can push up income-tested items for that year.
Related
- What makes a redundancy genuine — the Fair Work test and the tax test
- How redundancy is taxed
- Redundancy pay table — the NES minimum in weeks and dollars
- Super on redundancy — and putting a payout into super
Sources
Figures on this page come from the following primary sources. The date is when we last checked the page against the source.
- Redundancy and early retirement (for employers) (ATO), checked 7 August 2026.
- TR 2009/2: genuine redundancy and early retirement scheme payments (ATO), checked 5 October 2026.
- Genuine redundancy payments (ATO), checked 10 August 2026.
- How ETP components are taxed (ATO), checked 5 October 2026.
- Schedule 11: tax table for employment termination payments (ATO), checked 7 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.