Redundancy payments and planning ahead

It’s important to know how much money you have, and how much you’ll need until you find a new job or move on to your next steps. This includes understanding your redundancy payment and managing your household expenses.

Your redundancy payment

Upon redundancy, you will receive some payments from your employer, each with different tax treatments. These include:

• A tax-free genuine redundancy payment
• An employment termination payment (ETP)
• Payments for any accrued annual and long service leave

Tax-free genuine redundancy payment

Any payments that meet the conditions of a genuine redundancy are tax-free up to a limit depending on your years of service with your employer.

The amount of a genuine redundancy payment you can receive tax-free in the 2024/25 financial year is $12,524 base plus $6,264 for each completed year of service up to a maximum ETP cap of $245,000. These thresholds may be increased on 1 July each year.

Employment Termination Payment

The amount of the payment that exceeds the tax-free portion is called employment termination payment (ETP) and is subject to tax.

ETPs payments include:

• unused sick leave and rostered days off
• in lieu of notice
• a ‘golden handshake’

ETPs do not include:

• a payment for unused annual leave or unused long service leave
• the tax-free part of a genuine redundancy payment or an early retirement scheme payment.

The amount of tax payable depends on if you’ve reached 60 years of age or not. This does not apply if you have reached the Age pension age.

Remember, you can access your super from the age of 60 and are fully retired.

ETP tax

ETP is taxed at the concessional rate of:

• 17% if you reached your preservation age (60 years old and older but under the Age Pension age of 67) or
• 32% if you have not reached preservation age, up to the relevant cap
• Amounts above the caps are taxed at the top marginal rate of 47%

The tax rates show include Medicare levy of 2%.

The whole-of-income cap is $180,000, this amount is not indexed. This cap is reduced by any other taxable income payments you receive in the income year.

Payments for any accrued annual and long service leave

Upon redundancy, you may also be eligible to receive a range of other payments that must be taken as cash (ie can’t be rolled into super before tax has been applied).

Termination payments that form part of a genuine redundancy and their tax treatment in the 2024/5 financial year are shown here:

Payment	Tax treatment in the event of a genuine redundancy	When tax is paid
Accured annual leave	100% taxed at a maximum rate of 30%	Deducted by your employer
Accured long service leave (pre 16/8/1978	5% taxed at your marginal rate	Deducted by your employer
Accured long service leave (post 15/8/1978)	100% taxed at a maximum rate of 30%	Deducted by your employer

The above tax rates do not include the Medicare levy.

If you have questions about your redundancy payment, please speak to your employer.

Planning your money

While it may be tempting to use your redundancy payment to pay down debts or buy an expensive item, it’s worth considering “parking” your redundancy payment in your bank account or home loan offset account.

This way you can readily access the funds until you have a clearer picture of the future. Once you get a new source of income, you can then reassess what to do with any leftover money.

Another important step is to prepare a budget. This will help you plan for your new financial situation and work out how long your redundancy payment will last. Use the Moneysmart Budget planner.

If you’re concerned about meeting mortgage or loan payments, contact your bank or lender to discuss options, for example putting payments on hold for a period of time. It is worthwhile doing this as soon as possible.

Centrelink benefits

If you have received a redundancy payment, you will be subject to an Income Maintenance Period i.e. a waiting period before you’re eligible to receive Centrelink assistance.

For more information and to find out if you’re eligible for Centrelink payments go to the Centrelink Payment and Service Finder.

WE’RE HERE TO HELP. SO LET’S TALK.

If you have any other questions, please call our Member Services Team on 1300 360 988, or email us.