A genuine redundancy payment is a payment you receive because the job you were doing is abolished. That is, your employer has made a decision that the job you are doing no longer exists and your employment is to be terminated.
A genuine redundancy has special tax treatment under the tax law where an amount paid up to a limit is tax free. If your redundancy does not meet the definition of genuine redundancy then it will be taxed under the normal employment termination payment rules.
A genuine redundancy payment is made up of two components:
- A tax free amount and
- An assessable amount==> see our post Tax Rates On Excessive Redundancy Component
Tax Free Amount:
To work out the tax free amount of a Genuine Redundancy Payment use the following formula:
Base amount + (service amount × years of service)
Below is a table setting out the Base Rates and Service Limits for a number of years.
Example – the tax free component for 2013 would be $9246 + ($4624 x years of service)
|
Income year
|
Base limit
|
For each complete year of service
|
|
2013-14
|
$9,246
|
$4,624
|
|
2012-13
|
$8,806
|
$4,404
|
|
2011-12
|
$8,435
|
$4,218
|
|
2010-11
|
$8,126
|
$4,064
|
|
2009-10
|
$7,732
|
$3,867
|
|
2008-09
|
$7,350
|
$3,676
|
|
2007-08
|
$7,020
|
$3,511
|
The tax free amount is non-assessable/non-exempt income – ie TAX FREE.
Note: the base amount and the service amount are indexed annually.
Assessable amount:
The amount in excess of the tax free amount of a genuine redundancy payment is taxed at specified rates – see this post ==> Tax Rates on component in excess of the TAX FREE amount.
For further information see this FREE fact sheet on taxation of redundancy payment.
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