Loading
thriftylashes(Initiate)Initiate
16 Aug 2025

Hello,

I've recently been made redundant and have received my redundancy payment. I understand that my redundancy meets the requirements of a genuine redundancy and I am under the preservation age. My ETP is in excess of the tax-free amount. My former employer has applied the whole-of-income cap to the remaining taxable ETP redundancy payment as opposed to the higher ETP only cap. My unused annual and long service leave has been taxed at 32% which I understand to be correct.


I have read this - https://www.ato.gov.au/tax-rates-and-codes/payg-withholding-schedule-11-tax-table-for-employment-termination-payments


Am I correct in my understanding that as my redundancy payment is for a genuine redundancy, then the taxable component of the redundancy pay of the ETP should be subject to the higher cap of $260k for 2025-26?


Thanks

604 views
10 replies
604 views
10 replies

All replies

PayrollDeanne(Taxicorn)Taxicorn
17 Aug 2025

Hiya @thriftylashes 👋


Yes, you are 💯 correct, as per this ATO guidance. Although, that assumes that the components of pay included in your "redundancy payment" are ONLY paid on genuine redundancy. There may be components included that would be paid to you anyway upon termination and they aren't included in the "redundancy payment" tax concessions and would have the whole of income cap applied to them.


Perhaps share that link with your former employer and ask them to confirm the components included in your "redundancy payment" and, if they are ONLY paid on redundancy, ask them to correct your payment, tax and income statement. If that does not happen, report them to the ATO 🤓


Termination payments are the most complex calculation in payroll and many employers get it wrong because the ATO guidance is so poor 😉


Deanne

Liked by thriftylashes
thriftylashes(Initiate)Initiate
27 Aug 2025

Thank you for this; this is so helpful. (Apologies for my delayed reply; I've been away). You do me a great service by replying so clearly!


As you suggest, there are multiple items I have been paid for as part of my employment termination such as annual and long-service leave encashments. However, my pro-rated performance bonus and redundancy payment (which is in excess of statutory) are only paid in the event of genuine redundancy, with bonus payments being forfeit in the event of voluntary resignation or involuntary due to misconduct. Therefore, this does make me think the redundancy payment and as well as the pro-rata bonus payments should be subject to the higher ETP $260k cap - would that be correct? Or is this bonus payment considered as a non-excluded payment?


Yes, you are right re the complexity - it has had my head spinning!


Thanks! TL


  • Avatar of woman with short light brown hair
Liked by PayrollDeanne
PayrollDeanne(Taxicorn)Taxicorn
27 Aug 2025

The pro-rated performance bonus would be paid to you regardless of the method of termination, then it is not included in the redundancy payment or any termination payment at all: it's still a bonus, marginally taxed and superable, reported on your income statement under Bonuses and Commissions.


Unused annual leave and LSL is definitely not part of the redundancy, as you are paid your entitlements when employment ends, regardless of the reason for termination.


It's the "redundancy payment" that should include, probably: PILON (payment in lieu of notice), actual redundancy payment (weeks salary x # weeks for each completed yr of service), potentially an ex-gratia payment. Those are the items that are typically rolled into the term "redundancy payment", which causes confusion.


PILON is OTE and therefore super guarantee should have been paid on it, as per the ATO OTE guidance.


Deanne


Liked by thriftylashes
thriftylashes(Initiate)Initiate
27 Aug 2025

@PayrollDeanne

Thanks again. The pro-rated performance bonus is only paid when made redundant - for all other employment termination methods this is forfeited and it is listed as a separate line item on the payslip.


My employer's redundancy scheme pays in excess of the statutory amounts and the way it is described in the scheme is as an ex-gratia severance award which is paid inclusive of statutory redundancy pay. This is the only item/amount included in the redundancy payment - everything else (leave balances, bonuses) are itemised separately. Does this mean the redundancy payment potentially falls into the whole-of-income cap, not the higher ETP cap, as part of it is ex-gratia per the scheme's wording?


I worked my notice so I do not expect PILON.


Thanks again.


thriftylashes(Initiate)Initiate
27 Aug 2025

@PayrollDeanne

Thanks again!


I had to look up the definition of lump sum D which I understand to be the tax-free component based on years of service. I know the amount that has been paid as tax-free as they emailed me a table that showed the amount tax-free. My payslip itself in respect to the redundancy payment just shows the total amount paid and total amount taxed. There is nothing to indicate a type R (or any type for that matter).


From the table they emailed me (not the payslip), the redundancy pay is broken into

Tax-free (which I assume is lump sum D)

Taxable (balance up to 180k) at 32%

Taxable (remainder) at 47%


Thanks again!

thriftylashes(Initiate)Initiate
28 Aug 2025

@PayrollDeanne

You have been so helpful. I can't thank you enough.


I've checked my income statement for this financial year (I was paid out in FY 25-26) and under "Income" my annual, long-service leave and redundancy pay have been added together and entered as one item called "Paid Leave Amount" with

"Leave payment type = Unused leave on termination"


I'm assuming by your answers here that my redundancy pay should be reflected as Lump Sum D, ETP type R etc on my Income Statement - instead of a consolidated line item showing annual leave.


Based on the links you've sent, I think the wrong ETP cap has been applied, it's been reported incorrectly to the ATO and that this may cause me a real issue come tax time next year if I earn income this year.

PayrollDeanne(Taxicorn)Taxicorn
28 Aug 2025

Absolutely 💯 it's been treated incorrectly by your former employer for tax and reporting purposes 😲 Provide them with the links below, as many employers get termination payments wrong as the ATO guidance is poor. Ask them to correct the tax and reporting. If they are unwilling to do so, report them to the ATO 🍀 they may receive penalties


The annual leave and long service leave paid on redundancy should be taxed at 32% and reported as Lump Sum A type R . Your genuine redundancy payments should be tax-free up to the limit and reported as Lump Sum D. The amount of the genuine redundancy in excess of the tax-free limit is taxed as an ETP life benefit at 32% up to the ETP cap, as you are under the preservation age and reported as an ETP type R taxable component.


Deanne

Liked by thriftylashes

Featured articles

What remote working means for your tax return

20 June 2024 · 3 min read time

Finding your TFN

6 Feb 2026 · 4 min read time

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

15 Apr 2026 · 4 min read time

Top liked users

  1. Bruce4Tax

    (Taxicorn)

    3260 likes

  2. Taxduck

    (Taxicorn)

    2057 likes

  3. PayrollDeanne

    (Taxicorn)

    816 likes

  4. YellowPotato

    (Taxicorn)

    528 likes

  5. knaresbro

    (Devotee)

    364 likes

Top contributors

  1. Bruce4Tax

    (Taxicorn)

    10396contributions

  2. Taxduck

    (Taxicorn)

    4752contributions

  3. PayrollDeanne

    (Taxicorn)

    2056contributions

  4. YellowPotato

    (Taxicorn)

    1351contributions

  5. YEP

    (Devotee)

    837contributions

Loading
Which ETP cap should be applied | ATO Community