Free Redundancy Tax Calculator Australia (2025–26)

Redundancy payments in Australia are taxed differently depending on the payment size, years of service, age, and whether the redundancy qualifies as “genuine” under ATO rules. For 2025-26, the tax-free component of a genuine redundancy is $13,100 plus $6,552 for each completed year of service. The calculator above estimates the tax-free amount, ETP tax, and take-home pay using current ATO rates.

What is a genuine redundancy?

A genuine redundancy occurs when your employer decides that your position no longer needs to be filled and terminates your employment. The ATO applies specific criteria to determine whether a redundancy qualifies as “genuine”, which matters because genuine redundancies receive significantly more favourable tax treatment.

For a redundancy to be considered genuine:

• The position must be abolished — the job itself no longer exists, not just the person in it
• You must be under age pension age at the time of dismissal (67 for most people born from 1 January 1957 onward)
• The employer must make the decision — it cannot be a voluntary departure initiated solely by the employee (though employer-initiated voluntary redundancy programs generally qualify)

What does NOT qualify as genuine redundancy?

The following situations are not treated as genuine redundancy for tax purposes:

• Dismissal for misconduct or poor performance — this is a termination, not a redundancy
• Reaching retirement age or a mandatory retirement clause in your contract
• Contract expiry — when a fixed-term contract ends naturally
• Voluntary resignation — even if you feel pressured, if you initiate the departure it may not qualify
• Being over age pension age (67) at the time of redundancy

If your payment does not meet the genuine redundancy criteria, the entire amount (less any tax-free components such as the invalidity segment) is treated as a standard Employment Termination Payment and taxed accordingly.

Tax-free limits for genuine redundancy

The ATO sets annual limits that determine how much of a genuine redundancy payment is completely tax-free. The formula is straightforward:

Tax-free amount = Base amount + (Per-year amount x completed years of service)

Important: Only completed full years of service count. If you worked 7 years and 11 months, only 7 completed years are used in the calculation. Partial years are not included.

Examples of tax-free amounts (2025-26)

How is the amount above the tax-free limit taxed?

Any portion of the redundancy payment that exceeds the tax-free amount is treated as an Employment Termination Payment (ETP). The tax rate on the ETP depends on two factors: your preservation age, and the ETP cap.

ETP tax rates

The ETP cap for 2025-26 is $260,000 (2024-25: $245,000). This cap applies only to the taxable portion of the ETP — the tax-free component does not count against it.

Preservation age

Your preservation age determines which ETP tax rate applies. It is based on your date of birth:

For most working-age Australians (born after 30 June 1964), the preservation age is 60. If you are 60 or older when made redundant, you pay 17% instead of 32% on the taxable ETP — a significant difference.

Whole-of-income cap does not apply

For genuine redundancy payments, the ATO classifies the ETP component as an “excluded” payment (Code R). This means the $180,000 whole-of-income cap that applies to standard ETPs does not apply. This is an important distinction — your other income during the year does not affect the ETP tax rate.

Unused leave on redundancy

When you are made redundant, you are typically paid out any accrued but unused annual leave and long service leave. These amounts are taxed separately from the redundancy payment itself.

Annual leave

For a genuine redundancy, unused annual leave is taxed at a flat 32% (including Medicare levy). This applies regardless of when the leave was accrued. The 32% flat rate can be lower than your marginal tax rate, making it a concessional treatment.

Long service leave

For a genuine redundancy, unused long service leave is taxed depending on when it was accrued:

Most employees will have all their long service leave accrued after 1978, so the 32% flat rate applies to the full amount.

Note: Unused leave payouts do not reduce the tax-free amount of the redundancy payment. They are separate components with their own tax treatment.

Worked examples

Example 1: Below preservation age, modest payment

Mark, age 38, is made genuinely redundant after 6 years of service (2025-26).

• Total redundancy payment: $60,000
• Unused annual leave: $8,000
• Unused long service leave: $0

Calculation:

• Tax-free amount: $13,100 + ($6,552 x 6) = $52,412
• Taxable ETP: $60,000 - $52,412 = $7,588
• Tax on ETP: $7,588 x 32% = $2,428
• Tax on annual leave: $8,000 x 32% = $2,560
• Total tax: $4,988
• Take-home pay: $63,012

Mark’s effective tax rate on the total $68,000 is approximately 7.3%.

Example 2: Below preservation age, larger payment

Sarah, age 45, is made genuinely redundant after 8 years of service (2025-26).

• Total redundancy payment: $120,000
• Unused annual leave: $15,000
• Unused long service leave: $8,000

Calculation:

• Tax-free amount: $13,100 + ($6,552 x 8) = $65,516
• Taxable ETP: $120,000 - $65,516 = $54,484
• Tax on ETP: $54,484 x 32% = $17,435
• Tax on annual leave: $15,000 x 32% = $4,800
• Tax on LSL: $8,000 x 32% = $2,560
• Total tax: $24,795
• Take-home pay: $118,205

Example 3: At preservation age

David, age 61, is made genuinely redundant after 20 years of service (2025-26). David was born in 1965, so his preservation age is 60 — he is at or above it.

• Total redundancy payment: $200,000
• Unused annual leave: $20,000
• Unused long service leave: $15,000

Calculation:

• Tax-free amount: $13,100 + ($6,552 x 20) = $144,140
• Taxable ETP: $200,000 - $144,140 = $55,860
• Tax on ETP: $55,860 x 17% = $9,496 (lower rate because at preservation age)
• Tax on annual leave: $20,000 x 32% = $6,400
• Tax on LSL: $15,000 x 32% = $4,800
• Total tax: $20,696
• Take-home pay: $214,304

Compare: if David were below preservation age, the ETP tax would be $55,860 x 32% = $17,875 — an extra $8,379 in tax.

What assumptions does this calculator make?

• Assumes the redundancy qualifies as a genuine redundancy under ATO rules
• Uses the selected financial year’s tax-free limits and ETP cap
• Assumes the employee is an Australian resident for tax purposes
• Assumes all long service leave was accrued from 16 August 1978 onward (32% flat rate)
• Does not include other income — the calculator shows tax on the redundancy payment only
• Does not account for any existing PAYG withholding or tax offsets
• Does not include the invalidity segment (relevant for disability-related terminations)
• Preservation age is determined by birth year (assumes born after 30 June of that year)

Tips for managing your redundancy payment

1. Check your employment contract and enterprise agreement — your actual redundancy entitlements (weeks per year of service, notice period, leave payouts) are determined by your contract, not by this calculator
2. Confirm the redundancy is “genuine” with your employer — ask for written confirmation that the position has been abolished
3. Consider salary sacrificing to super before the termination date if possible, as this may reduce your taxable income for the year
4. Speak with a registered tax agent about your specific situation — particularly if you have other income, capital gains, or if the payment is large enough to approach the ETP cap
5. Do not confuse weeks of service with years — the tax-free calculation uses completed years, not weeks or months