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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:

  1. a tax free amount and ==> see our post Redundancy Payment Calculator
  2. an assessable amount==> see tax rates below

After any tax-free component has been deducted, the balance of the Eligible Termination Payment (ETP) (assessable amount) is taxed at a concessional rate up to a limit called the ETP cap amount ($180,000 for 2014).

Tax on Excessive Redundancy Payment (ETP):
For the 2014 financial year, the Eligible Termination Payment cap amount is $180,000. This amount is indexed annually.

Calculating the amount to be withheld from an excessive Redundancy payment (ETP)

Once you have deducted any tax-free component from the total ETP, the remainder is the taxable component. The amount you need to withhold from the taxable component depends on the age of your employee at the end of the income year.

Under 55 Up to the ETP cap amount – 34% (including Medicare Levy)
55 and over Up to the ETP cap amount 17% (including Medicare Levy)
All employees Over the ETP cap amount 47% (including Medicare Levy)

For further information see this FREE fact sheet on taxation of reduancy payment.

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