Loading
Jessem(Initiate)Initiate
24 June 2025

Hi Brains trust

I know this has been answered, yet no consistent answers and answers that directly contradict the ATO guidelines on tax free components.

I have recently been served redundancy notice, where my employment will end in November at which time, the company will be completely wound down.

As a genuine redundancy, could someone please confirm the components that are included in tax free cap -

Redundancy pay

PILON paid at end of employment

Ex Gratis


Calcs have been shared, however PILON and ex gratis have been included as ETP and not applied to my tax free redundancy cap.


I have previously been made redundant for the exact same reason (cessation of business) and all these amounts were attributed to my tax free limit - same industry, same role/title


Per ATO website

Amounts you include from a genuine redundancy

Depending on your employment conditions, a genuine redundancy payment may include:


payment in lieu of notice

severance payment of a number of weeks' pay for each year of service

a gratuity or 'golden handshake'.

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 tax-free limit is a whole dollar amount plus an amount for each year of service you complete in your period of employment with your employer. Indexation changes the tax-free limit on 1 July each year.


Your employer will report the tax-free amount as a lump sum on your income statement or PAYG payment summary โ€“ individual non-business.


Sorry I know this is a lot of information and very specific but I can't wrap my head around the replies confirming ex gratis and PILON attract ETP, instead of tax free component. In what situations would a genuine redundancy exclude these components from tax free limit?


Thanks in advance?!




315 views
2 replies
315 views
2 replies

All replies

PayrollDeanne(Taxicorn)Taxicorn
24 June 2025

Hiya @Jessem ๐Ÿ‘‹


ATO guidance has a lot of nuance that you need to be aware of ๐Ÿ˜‰ Termination payments are the most complex calculation in payroll and one component of pay doesn't have a single, definite treatment. It depends on a number of factors and that's the key.


Firstly, note how the Individuals guidance you have copied has this magic word: "... a genuine redundancy payment may include ...". They aren't going to freak out Individuals by listing out all the factors and conditions and possibilities of how each component of pay may be taxed. It's not at all simple. ๐Ÿ˜ตโ€๐Ÿ’ซ


Secondly, the concept of the tax-free part of a genuine redundancy is to segregate those components of pay that are not ALSO paid on a voluntary resignation, to compensate those who hadn't reached their preservation age, for the loss of their job, when the Fair Work conditions are met for a genuine redundancy. Whew! They have a long-standing tax ruling that explains it (not in an Individuals-friendly way!) ๐Ÿ˜ต


Let's focus on your core issue: why can one employer consider PILON/ex-gratia as Lump Sum D and another employer consider them an ETP? There are two possible reasons:

  1. The employer also pays/has paid those components of pay to those who resign. It's not about you, it's about what your employer chooses to pay others. If it's not restricted to redundancy vs resignation, there's no special tax treatment.
  2. That the redundancy component (number of weeks for each completed years of service) is the amount of the tax-free threshold, so the remaining components of pay are therefore the taxable component of an ETP.

Only your employer can advise which of those reasons applies in your case ๐Ÿค“ PILON is a very typical component of pay for employers to also pay, in certain circumstances, to those who resign. It's unusual for an ex-gratia payment to be paid to those who resign ๐Ÿค”


Deanne

Liked by Jessem and PBSSA
Jessem(Initiate)Initiate
25 June 2025

Thank you very much!! I went down a deep dive in TR/2009 2 and found this example that specifically relates to my circumstances. May be useful for others looking for same.

In my case, ex gratia would not be paid had it been anything other than genuine redundancy so tax exempt, PILON, debatable but maybe taxable ๐Ÿ˜”


Example 19 - Working out the components of a termination payment


186. Anne Jones has been an employee of EX Pty Ltd (EX) for 20 years. The Board of EX decides that competitive pressures are such that staff numbers have to be reduced by 50%. Anne is subsequently dismissed from her employment.


187. Anne receives a lump sum payment of $200,000 from EX during the 2007-08 income year. Of this amount, $50,000 represents an unused annual leave entitlement and $50,000 represents an unused long service leave entitlement. Anne's employment contract also provided for a lump sum payment of $20,000 in the event of her resignation or retirement.


188. Subsection 83-175(4) provides that payments mentioned in section 82-135, which includes unused annual leave payments and unused long service leave payments, are not genuine redundancy payments.


189. Accordingly, the first step in working out the tax treatment of the $200,000 is to apply the rules for unused annual leave payments and unused long service leave payments[40] to the respective amounts of $50,000.


190. The balance of $100,000 is a genuine redundancy payment except to the extent of any amount Anne would have received had she voluntarily retired or resigned. As Anne would have received $20,000 in these circumstances, this voluntary termination element is excluded from being a genuine redundancy payment.


191. Therefore, the remaining $80,000 is a genuine redundancy payment. Under section 83-170, the base amount is $7,020 and the service amount is $3,511 for the 2007-08 income year. Therefore, the tax-free amount of her genuine redundancy payment is $77,240 ($7,020 + (20 x $3,511)). The remaining $2,760 is an ordinary employment termination payment.


  • Avatar of woman with short light brown hair
Liked by PayrollDeanne

Featured articles

Tax tips for managing your side hustle

22 Apr 2024 ยท 6 min read time

Tax on gifts and inheritances

15 Apr 2026 ยท 5 min read time

How much tax should I pay on a second job? Claiming the tax-free threshold

15 Apr 2026 ยท 4 min read time

Top liked users

  1. Bruce4Tax

    (Taxicorn)

    3245 likes

  2. Taxduck

    (Taxicorn)

    2035 likes

  3. PayrollDeanne

    (Taxicorn)

    804 likes

  4. YellowPotato

    (Taxicorn)

    513 likes

  5. knaresbro

    (Devotee)

    358 likes

Top contributors

  1. Bruce4Tax

    (Taxicorn)

    10370contributions

  2. Taxduck

    (Taxicorn)

    4721contributions

  3. PayrollDeanne

    (Taxicorn)

    2040contributions

  4. YellowPotato

    (Taxicorn)

    1325contributions

  5. YEP

    (Devotee)

    837contributions

Loading
Tax on genuine redundancy | ATO Community