Hi ATO Community,
I was recently made redundant from my full-time role and would really appreciate clarification on the tax treatment of my final payout.
My redundancy was classified as a genuine redundancy. I had just over 1 year of continuous service, and my final payout included:
- 4 weeks’ redundancy pay – $7,692.30
- 2 weeks’ payment in lieu of notice – $3,846.15
Total: $11,538.45
This amount is below the tax-free threshold of $18,958 for one year of service (base $12,638 + $6,320 for each full year).
However, my employer has taxed the notice pay as an ETP Type O at 32%, stating that it is not included in the tax-free threshold, as PILON does not form part of the redundancy payout - they are separate termination payment items.
From what I’ve read on the ATO’s genuine redundancy payments page, I understand that:
“The tax-free limit includes payments in lieu of notice…”
“If the amount you receive exceeds the tax-free limit, the excess is treated as an ETP.”
So, if the total redundancy-related payout is under the threshold, shouldn’t both the redundancy and notice payments be tax-free?
Can someone from the ATO (or anyone with experience) please confirm:
- Whether the payment in lieu of notice should be included in the tax-free cap
- If so, what steps I can take to correct this with my employer or via my tax return?
Thanks in advance!
— Tyler
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