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Australia Termination Payments Guide

Australian employment termination payments (ETP). The guide covers: the genuine redundancy payment — the 'genuine redundancy payment' is the 'payment made to the employee due to the 'bona fide redundancy'' — the 'genuine redundancy' is the 'termination of the employment due to the 'operational reasons' (the 'restructure', the 'redundancy program', the 'business closure'); the 'genuine redundancy payment' is 'tax-free up to the 'limit' based on the 'years of service'' — the 'tax-free amount' is calculated as: the '$10,989 plus the $5,496 for each completed year of service' (for the '2025-26 year'); the 'payment above the tax-free limit' is 'taxed as the 'Employment Termination Payment (the 'ETP')'; the unused annual leave and the long service leave — the 'payment for the 'unused annual leave' on the 'termination of the employment' is 'taxed at the 'marginal rate' (the 'pay as you go (PAYG) withholding' at the 'marginal rate'); the 'payment for the 'unused long service leave' on the 'termination of the employment' is 'taxed at the 'marginal rate'; the 'leave payments' are NOT 'eligible for the ETP tax treatment' — the 'leave payments are the 'ordinary employment income'; the Employment Termination Payment (the 'ETP') — the 'ETP' is the 'payment made to the employee on the 'termination of the employment' that is NOT the 'salary, the wages, the leave payments, or the redundancy payment' — the 'ETP includes': (i) the 'payment in the lieu of the notice', (ii) the 'compensation for the loss of the employment', (iii) the 'golden handshake', (iv) the 'unused rostered days off (the 'RDOs')', (v) the 'payment from the 'employee share scheme' that is 'paid after the termination'; the 'ETP tax treatment': (i) the 'ETP cap' of $235,000 (for the '2025-26 year' — the 'indexed cap'), (ii) the 'ETP below the cap' — the 'taxed element' is 'taxed at the 'maximum rate of 30% plus the 2% Medicare levy' (the '32% marginal rate'), (iii) the 'ETP above the cap' — the 'excess is 'taxed at the 'marginal rate' (the '45% plus the 2% Medicare levy'); the 'ETP' is 'reported in the employee's tax return' at the 'ETP label' (the 'label E in the tax return'); the PAYG withholding on the termination payments — the 'employer' must 'withhold the PAYG' from the 'termination payments' using the 'PAYG withholding schedules for the termination payments' (the 'ETP schedule' and the 'leave schedule'); the 'employer uses the 'Statement of the Termination Payment (the 'STP')' to 'report the termination payments to the ATO'.

Genuine Redundancy

  • Tax-free amount: The '$10,989 plus $5,496 per completed year of service' is 'tax-free' for the '2025-26 year'.
  • Payment above the limit: The 'excess' is 'taxed as the ETP at 30% plus the 2% Medicare levy'.
  • Operational reasons: The 'redundancy must be for the 'operational reasons' (the 'bona fide redundancy').

For the PAYG withholding and the employer obligations, see our Hiring Employees Guide →.

ETP Tax Rates

  • ETP cap — $235,000: The 'maximum ETP that can be 'taxed at the 30% plus the 2% Medicare levy'.
  • ETP below the cap: The 'taxed element is 'taxed at 32% (the 30% + the 2% Medicare levy)'.
  • ETP above the cap: The 'excess is 'taxed at the 47% (the 45% + the 2% Medicare levy)'.

For the personal tax rates and the Medicare levy, see our Personal Tax Guide →.