Making the most of your redundancy

If you are leaving your employer due to redundancy, you have a great opportunity to make a fresh start.

Now could be the best time for you to think about a career change, become self-employed or consider retiring if you are close to retirement. But regardless of what your next steps might be, it’s important that you:

  • understand the payments you may receive from your employer and what tax treatments apply
  • consider the financial issues likely to be relevant to your age and career goals, and
  • speak to a financial adviser to find out how you could manage your redundancy payments effectively.

Note: The information in this article assumes you’re departing due to a genuine redundancy. This will generally be the case if you are under your age pension age[1], your employer has determined that your position no longer exists and you are not replaced by another employee.

Types of payments

The types of payments you may receive in the event of a genuine redundancy include:

  • The tax-free part of a genuine redundancy payment. The tax-free part is based on your full years of service with your employer.
  • An Employment Termination Payment (ETP), which is a lump sum payment you may receive when your employment arrangement has come to an end. Examples include genuine redundancy payments exceeding the tax-free limit, unused sick leave, unused rostered days off, payments in lieu of notice and golden handshakes (also known as ‘ex-gratia’ payments).
  • Other payments you receive from your employer including accrued annual leave, accrued long service leave and your final pay.

Each of these payments are paid as cash less any applicable taxes. The table in the Appendix summarises the tax treatment of common payments in the 2020/21 financial year that may be received in the event of a genuine redundancy.

Financial issues to consider

When you take a redundancy, you will need to decide what you are going to do with the payments you are eligible to receive. Other financial issues you may need to consider will depend on whether you intend to find a new job, or you plan to retire.

If you plan on finding a new job, some of the important questions you should address include:

  1. How will you meet your living expenses until you find another job?
  2. Will you be eligible for the JobSeeker Payment or other relevant social security benefit?
  3. Will you need to move your superannuation to another fund?
  4. Should you merge your superannuation into one account?
  5. Should you use some of your superannuation to pay yourself a pension (if eligible[2])?
  6. Will any insurance policies taken out on your life cease when you leave your employer?
  7. What should you do with any leftover redundancy pay when you find another job?

Some key questions to consider if you’d like to retire upon leaving your employer are:

  1. Have you accumulated enough wealth within and outside superannuation to provide an income to meet your ongoing lifestyle needs?
  2. Should you use some of your superannuation to pay yourself a pension (if eligible1)?
  3. Will you be eligible for the Age Pension or other relevant social security benefit?
  4. Do you need to review your estate plans?
  5. Do you need to review your insurances?

Value of advice

After reading this information, we can help you:

  • decide what to do with the payments you are eligible to receive from your employer
  • make the most of your super to help you become financially secure in retirement
  • ensure you and your family are financially protected in the event of death or disability,

by having appropriate insurance cover, and

  • determine whether you are eligible for any Government income support payments.

We can also assist you with a range of other needs which may include:

  • improving your cash flow
  • growing your investments
  • managing your debt, and
  • considering your estate planning needs.

To find out more, contact Michael Mazalevskis on (08) 93898871

Appendix – tax treatment of payments

  Payment Maximum tax payable in 2020/21  
  Genuine redundancy payment Tax-free up to a maximum of $10,989[1] + ($5,4963 x each completed year of service)  
  Employment Termination Payment[2]    
  §  Tax-free component Nil  
  §  Taxable component[3]    
  –       If under preservation age[4] –     First $215,000[5] taxed at 32%[6] and excess taxed at 47%8  
  –       If preservation age5 or over –     First $215,0006 taxed at 17%8 and excess taxed at 47%8  
  Accrued annual leave 100% of payment taxed at maximum rate of 32%8  
  Accrued long service leave[7]    
  §  To15/08/1978 service §  5% of payment taxed at your marginal rate  
  §  From16/08/1978 service §  100% of payment taxed at maximum rate of 32%8  
  Final pay 100% of payment taxed at your marginal rate  

Important information and disclaimer

This article has been prepared by Advice Line Australia Corporate Representative of Lifespan Financial Planning. Any advice provided is of a general nature only. It does not take into account your objectives, financial situation or needs. Please seek personal advice before making a decision about a financial product. Information in this article is current as at 1 July 2020. While care has been taken in the preparation of this article, no liability is accepted by Advice Line Australia, Lifespan Financial Planning or its related entities, agents or employees for any loss arising from reliance on this article. Any opinions expressed constitute our views at the time of issue and are subject to change. Case studies are for illustration purposes only. Any tax information provided in this article is intended as a guide only. It is not intended to be a substitute for specialised tax advice. We recommend that you consult with a registered tax agent.



[1] Your pension age depends on your date of birth. Currently age pension age is 66 and increasing to 67 by 2023.

[2] To be able to access your superannuation to commence an income stream you must have reached your preservation age5.

 [3] This threshold is indexed on 1 July of each year.

[4] A different tax treatment may apply to ETPs received when leaving an employer voluntarily or where a redundancy is not considered
  as genuine.

[5] If you receive an ETP that reasonably could be expected to be received as a result of a voluntary termination of employment and that
   payment causes your income to exceed $180,000 (the ‘whole of income’ cap), the part of the ETP that causes
   your income to exceed $180,000 will not be subject to a tax offset and will be taxed at 47% including the Medicare Levy.

[6] For those born before 1 July 1960, preservation age is 55. For those born on or after 1 July 1960, your preservation age will depend on
   your date of birth. For more information see the ATO website (

[7] This is the ETP cap. This cap is current for 2020/210 and is an annual limit that applies to all ETPs received as a result of a genuine
   redundancy or other involuntary terminations of employment in a financial year (or related to that year).

[8] Includes Medicare Levy.

[9] In some cases, you’ll need to have worked for your employer for at least 10 years to qualify for long service leave. However,
   some employers have a statutory obligation to pay pro-rated long service leave if you are made redundant after five years of service.





Leave a Reply

Your email address will not be published. Required fields are marked *

Making the most of your redundancy