Work out the tax on an employment termination payment: genuine redundancy pay, a golden handshake or pay in lieu of notice, using the ATO's 2026–27 caps and withholding rates.
Key facts
- An employment termination payment (ETP) is taxed at 32% if you're under your preservation age, or 17% if you're at or over it, up to a cap; anything over the cap is taxed at 47% (rates include the Medicare levy).
- For a genuine redundancy in 2026–27, the first $13,598 plus $6,801 for each completed year of service is tax-free; only the rest is an ETP, and it uses the ETP cap of $270,000.
- Golden handshakes, pay in lieu of notice and unused sick leave use the smaller of the ETP cap and the whole-of-income cap: $180,000 less your other taxable pay in the financial year.
- Unused annual leave and long service leave aren't ETPs: they're taxed under a separate schedule.
- Preservation age is 60 for anyone born on or after 1 July 1964.
ETP tax rates (2026–27)
| Your age | Up to the cap | Over the cap |
|---|---|---|
| Under preservation age | 32% | 47% |
| Preservation age or older | 17% | 47% |
Tax-free genuine redundancy amount (2026–27)
| Completed years of service | Tax-free amount |
|---|---|
| 1 | $20,399 |
| 2 | $27,200 |
| 3 | $34,001 |
| 5 | $47,603 |
| 10 | $81,608 |
| 15 | $115,613 |
| 20 | $149,618 |
These are the PAYG withholding rates your employer uses; the ETP is shown on your income statement and the final tax is worked out in your tax return. Not included: the tax-free component for invalidity or pre-July 1983 service, and death benefit ETPs.
Common questions
How much tax do I pay on a redundancy payout?
None on the tax-free part ($13,598 plus $6,801 per completed year of service in 2026–27). The rest is taxed at 32% under preservation age or 17% at or over it, up to $270,000.
What is the ETP cap for 2026–27?
$270,000, up from $260,000 in 2025–26. It's indexed each year.
What is the whole-of-income cap?
$180,000 less your other taxable payments in the financial year (salary, leave, earlier ETPs). It applies to non-redundancy ETPs such as golden handshakes; above it, the ETP is taxed at 47%.
Is pay in lieu of notice an ETP?
Yes. Pay in lieu of notice, gratuities, golden handshakes, non-genuine redundancy pay and unused sick leave or rostered days off paid on termination are ETPs.
ATO example: how is Alec's payout taxed?
Alec, 30, gets $48,000 genuine redundancy after 5 years and a $17,678 gratuity, with $140,000 of salary. $47,603 is tax-free, $127.00 is withheld from the $397 redundancy ETP and $5,657.00 from the gratuity (his whole-of-income cap is $40,000).
See also the redundancy pay calculator, the guide to redundancy pay and the annual leave calculator.
Sources: ATO ETP caps and tax-free redundancy limits, Schedule 11 tax table for ETPs and applying the ETP caps. Checked 22 October 2026.