A genuine redundancy payment is a payment made to you as an employee who is dismissed because the job you were doing has been abolished. Depending on your service conditions, for example amounts your employer is essential to pay under the work agreement or employment contract, a genuine redundancy expense 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’.
The following payments are not integrated in a genuine redundancy payment:
- salary, wages or allowances owing to you for work done or leave already taken for work finished
- lump sum payments of unused annual leave or leave loading paid on termination of employment
- lump sum payments of unused long service leave paid on termination of employment under a formal arrangement
- payments made in lieu of superannuation benefits.
Any payments that meet the circumstances of a real redundancy are tax free up to a boundary based on your years of service with your employer. The tax-free limit is a flat dollar amount plus an amount for each year of completed service in your period of employment with your employer. Indexation changes the tax-free limit on 1 July each year.