Being made redundant is disorienting. If you receive a redundancy payout in Australia, the first step is to work out what parts of it you’ve been paid, how each component is taxed, and what your real after-tax amount is before you decide what to do with the money. Then the priority is usually to protect your financial runway: keep enough cash liquid for living costs, set aside any tax, review debt and fixed expenses, and consider super, insurance and timing issues before locking money away.
What most people don’t realise is that a redundancy payment isn’t one payment at all. It’s several different payments, each taxed under different rules, including any genuine redundancy amount, tax-free threshold based on years of service, and Employment Termination Payment amounts that may still be taxable. Estimating your payout with a single rough percentage almost always gets it wrong, and decisions made on the wrong number tend to be expensive ones.
If you’ve been made redundant in Australia, or you’re facing redundancy and want to understand how to manage the payout without creating avoidable tax problems, this guide walks through the key parts of the payment, how the tax rules work, when timing can change the outcome, and how to use the money sensibly while you transition. It also covers budgeting, liquidity, mortgage and super options, insurance and Centrelink implications, and common mistakes that can turn a useful buffer into a financial setback.
Your Payout Isn't One Payment
A redundancy package typically bundles together several components, and redundancy pay and other redundancy entitlements depend on your years of service, base pay, and the relevant award, contract, enterprise agreement, or national employment standards, so they don’t share a tax treatment:
The genuine redundancy payment — the core severance amount, which has a tax-free portion based on your years of service.
An Employment Termination Payment (ETP) — any amount above the tax-free limit, taxed concessionally but not tax-free.
Unused annual leave and long service leave — taxed under their own separate rules, not part of the redundancy or ETP treatment.
Payment in lieu of notice, golden handshakes, unused sick leave — often treated as non-genuine ETP components, subject to tighter caps.
Review your employment conditions and any employer agreements to confirm your redundancy entitlements are calculated correctly.
Until you split the package into its parts, you genuinely don’t know what your redundancy is worth. This is the single most common mistake people make.
The Tax-Free Threshold for a Genuine Redundancy Payment: Your Biggest Advantage
If your redundancy is a genuine redundancy — meaning your employer terminates the employee’s job because the position no longer exists, and you were dismissed rather than resigned — a portion of the payment is completely tax-free.
For the 2026–27 financial year, the tax-free limit is:
$13,598 (base amount) + $6,801 for each completed year of service
A worked example. Priya has completed 10 full years of service and receives a genuine redundancy payment of $100,000.
Her tax-free limit is $13,598 + ($6,801 × 10) = $81,608.
So $81,608 of her payment is entirely tax-free. The remaining $18,392 doesn’t become ordinary salary — it moves into the ETP framework and is taxed under those concessional rules. Certain redundancy payments can be tax-free up to the limit set by the Australian Taxation Office.
Note that these amounts are indexed on 1 July each year, and only completed years of service count. For the previous 2025–26 year, the figures were $13,100 plus $6,552 per year, while for the 2019–20 tax year the tax-free base amount was $10,638.
How the Employment Termination Payment (ETP) Portion Is Taxed
Anything above the tax-free limit becomes an Employment Termination Payment, which has important tax implications and is taxed concessionally up to a cap:
If you have reached preservation age (currently 60), the taxable component is taxed at a maximum of 15% plus Medicare (17%) up to the cap.
If you are under preservation age, it’s taxed at a maximum of 30% plus Medicare (32%) up to the cap.
Anything above the cap is taxed at the top marginal rate — 45% plus Medicare (47%).
For 2026–27, the ETP cap is $270,000. There’s also a separate whole-of-income cap of $180,000 (not indexed), which is reduced by your other taxable income for the year.
Which cap applies depends on the payment type. Here’s the practical distinction:
Genuine redundancy amounts above the tax-free limit are “excluded payments” — only the ETP cap applies. This is favourable.
Non-genuine payments face the lower of the two caps. A non genuine redundancy is one that does not qualify as genuine, and non genuine redundancy occurs when the payment is taxed differently from normal income under the relevant caps. Because the whole-of-income cap is reduced by your salary earned that year, a high earner can find this cap is effectively zero, meaning the entire amount is taxed at the top marginal rate.
The following payments are commonly treated as non-genuine ETP amounts: payment in lieu of notice, golden handshakes, and unused sick leave. Check your year-end income statement to make sure your employer has reported each component correctly.
This is exactly why “genuine redundancy” status matters so much, and why the composition of your package deserves close attention. If your package includes both types, a financial adviser can help assess the tax implications.
Timing Can Be Worth Thousands
Two timing considerations are worth knowing:
The 12-month rule. To receive concessional ETP treatment, the payment must generally be received within 12 months of termination. Genuine redundancy payments are one of the exceptions, but other ETP components aren’t.
Which financial year. Because the whole-of-income cap is reduced by your other taxable income for the year, receiving a payout in a year when your income is already high can push more of it into top-rate territory. Timing across a financial year can also affect the tax treatment shown on your income statement and the amount withheld. If your income will drop substantially next financial year and your employer has flexibility on timing, deferring receipt until after 1 July can materially reduce the tax. This is a real, legal strategy — but it depends on your specific numbers and your employer’s willingness. Before trying to defer or restructure payment timing, seek professional advice.
What to Do With the Money: Consulting a Financial Adviser
Once you know your actual after-tax figure, a sensible order of priorities usually looks like this:
1. Work out your runway. How many months can you cover with the payout plus existing savings? This number, more than any other, determines how much pressure you’re under and how choosy you can be about your next role. Many people aim to hold at least 3–6 months of living expenses in cash from the payout before making bigger moves. Calculate it before you spend anything.
2. Park it somewhere safe. An online savings account or short-term deposit. Resist the urge to invest a redundancy payout in growth assets while you’re unemployed — you may need the money at short notice, and being forced to sell in a downturn is exactly the wrong outcome.
3. Set aside the tax. Depending on how your employer withheld, you may owe more (or be refunded) at tax time. Don’t assume the amount that landed in your account is yours to keep entirely.
4. Cover the essentials and trim the rest. Keep up with home loan repayments, insurances and health cover. Cut discretionary spending early rather than late — it extends your runway far more effectively than a scramble later.
5. Think carefully before paying down the mortgage. It’s tempting, and mathematically attractive. But money used to pay down a loan isn’t easily accessible again unless you have a redraw or offset facility. While you’re between jobs, liquidity often matters more than interest saved. An offset account gives you both.
6. Consider super — carefully. Contributing part of a payout to super can be tax-effective, particularly if you’re near retirement or can use carry-forward concessional contributions. But super locks money away until preservation age, so it’s rarely right while you still need access. Note that redundancy ETPs can’t be rolled directly into super, though you may be able to make a personal contribution.
7. Check your entitlements. You may be eligible for Centrelink support and Centrelink benefits, though a redundancy payment can trigger an income maintenance period and other waiting period rules that depend in part on how much redundancy pay you received. Check early rather than assuming either way.
If you’re facing redundancy and need to find a new job, using part of the payout for professional development, upgraded skills, certifications, or a career coach can improve employability and may help you land a new job faster.
Don't Forget Your Insurance
A frequently missed consequence: if you had life, TPD or income protection insurance inside your super fund or superannuation fund, leaving your employer means contributions stop. Under the Protecting Your Super rules, if no contributions or rollovers reach the account for 16 continuous months, your insurance is automatically cancelled unless you opt in to keep it.
If you have a health condition, that cover may be impossible to replace. A small voluntary contribution, or an explicit opt-in with your fund, can preserve it, and it is also worth checking whether any other superannuation benefits linked to the account or employer will stop when employment ends. This is one of the highest-stakes, lowest-effort things to check after a redundancy.
How Money Path Can Help
A redundancy payout is a decision point, not just a payment. The tax treatment is genuinely complex, the timing can be worth thousands, and the choices you make in the first few weeks — how much to keep liquid, whether to pay down debt, what happens to your insurance — shape the next few years more than most people realise.
At Money Path, we help you get clarity fast. We break your package into its components and calculate what you’ll actually keep after tax, and how professional financial advice may help maximise your redundancy payout after tax, so you’re planning on a real number rather than a guess. We look at whether timing, structuring or super contributions could legally reduce the tax on your payout. We work out your runway and build a plan that keeps you liquid and unpressured, supporting your financial wellbeing while you find your next role. We check the things that get missed — insurance cover lapsing inside super, Centrelink income maintenance periods, whether paying down the mortgage is actually the right call for you right now. A financial adviser can provide financial advice or personal advice depending on the engagement, and help with complex tax, super, Centrelink, and cash-flow decisions. Money Path operates through licensed authorised representatives, and the compliance settings around advice continue to evolve, including Tranche 2 reforms in Australia.
And if the redundancy has prompted bigger questions — early retirement, a career change, starting a business, or planning for your retirement lifestyle — we help you model whether the numbers support it.
You didn’t choose this moment, but you can choose what to do with it. If you’ve been made redundant or are facing a restructure, talk to the team at Money Path before you make any major decisions with the money.
Frequently Asked Questions
How is a redundancy payout taxed in Australia? It depends on the components. A genuine redundancy payment has a tax-free portion based on years of service — for 2026–27, $13,598 plus $6,801 per completed year. Any amount above that becomes an Employment Termination Payment (ETP), taxed at up to 15% plus Medicare if you’ve reached preservation age, or up to 30% plus Medicare if you haven’t, up to the $270,000 ETP cap. Unused annual and long service leave are taxed under separate rules again.
How much of my redundancy payment is tax-free? For the 2026–27 financial year, the tax-free limit is $13,598 plus $6,801 for each completed year of service. For example, with 10 full years of service, $81,608 of a genuine redundancy payment is tax-free. Only completed years count, and the amounts are indexed each 1 July. The payment must qualify as a genuine redundancy to access this threshold.
What is a genuine redundancy? A genuine redundancy occurs when your employer decides your position no longer exists and dismisses you — the decision must be the employer’s, not a resignation. Only genuine redundancy payments qualify for the tax-free threshold. Payments that would have been made on any voluntary departure, such as a golden handshake or payment in lieu of notice, don’t qualify, are treated differently for tax, and may include amounts that would have been paid on a voluntary departure.
Should I pay off my mortgage with my redundancy payout? Be careful. Paying down a loan is mathematically attractive, but the money isn’t easily accessible again unless you have a redraw or offset facility. While you’re between jobs, liquidity often matters more than the interest you’d save. An offset account can give you both — reducing interest while keeping the funds available. It’s worth modelling before committing.
Can I put my redundancy payment into super? Not directly — redundancy ETPs generally can’t be rolled into super. You may be able to make a personal contribution from the proceeds, which can be tax-effective if you’re near retirement or have unused carry-forward concessional cap space. But super locks the money away until preservation age, so it’s usually unwise while you still need access to funds.
What is the ETP cap for 2026–27? The ETP cap for the 2026–27 income year is $270,000, and it’s indexed annually. There’s also a whole-of-income cap of $180,000, which isn’t indexed and is reduced by your other taxable income for the year. Genuine redundancy amounts above the tax-free limit are subject only to the ETP cap; non-genuine payments face the lower of the two caps.
Will my redundancy payout affect Centrelink payments? It can. A redundancy payment may trigger an income maintenance period or waiting period, during which Centrelink treats the payout as if it were ongoing income, potentially delaying when your payments start. It’s worth checking your eligibility with Services Australia early rather than assuming you’re either eligible or ineligible.
What happens to my insurance in super after redundancy? This is commonly missed. If your life, TPD or income protection cover is held inside super, contributions stop when you leave your employer. Under the Protecting Your Super rules, if no contributions or rollovers reach the account for 16 continuous months, your insurance is automatically cancelled unless you opt in to keep it. If your health has changed, replacing that cover may be difficult or impossible.
Should I invest my redundancy payout? Generally not in growth assets while you’re unemployed. You may need the money at short notice, and being forced to sell shares in a downturn locks in losses at the worst time. Keep the payout liquid — in a high-interest savings account or short-term deposit — until you have income again and know your runway. Spending part of it on skills or certifications may be more valuable if you’re trying to find a new job. Investing decisions are better made once your employment situation is settled.
This article is general information only and does not take into account your personal objectives, financial situation or needs. Tax rates, caps and thresholds are indexed and change; figures are current as at the date of writing for the 2026–27 financial year. Always confirm current figures with the ATO and seek personal financial and tax advice from a financial adviser or the Fair Work Ombudsman/ATO where relevant before acting.
