Unused Leave & Lump Sum Tax Calculator 2025-26
Calculate the tax on your unused annual leave, long service leave and other termination payments. Uses ATO Schedule 7 (leave payments) and Schedule 11 (ETPs) withholding rates for the 2025-26 financial year.
2025-26 ATO Schedule 7 & Schedule 11 rates
Enter your leave payout or termination payment details to see the tax breakdown
How unused annual leave is taxed
When you leave a job, your employer must pay out any accrued but untaken annual leave. The ATO treats this as a lump sum payment (Type A) and the tax rate depends on when the leave was accrued and why you left.
| Scenario | Tax treatment |
|---|---|
| Leave accrued before 18 Aug 1993 | Flat 32% (includes Medicare levy) |
| Leave accrued after 17 Aug 1993 — normal termination | Marginal tax rates (added to other income) |
| All annual leave — genuine redundancy | Flat 32% (includes Medicare levy) |
How unused long service leave is taxed
Long service leave has three accrual periods, each with different tax treatment. This reflects historical changes to the Income Tax Assessment Act.
| Accrual period | Tax treatment |
|---|---|
| Pre-16 Aug 1978 | Only 5% assessable at marginal rates |
| 16 Aug 1978 – 17 Aug 1993 | Flat 32% (includes Medicare levy) |
| Post-17 Aug 1993 — normal termination | Marginal tax rates |
| Post-17 Aug 1993 — genuine redundancy | Flat 32% (includes Medicare levy) |
The pre-1978 concession is very generous — for a $20,000 LSL payout from that period, only $1,000 (5%) is added to your assessable income.
Genuine redundancy tax-free component
If you are made genuinely redundant, part of your total termination payment is tax-free. For 2025-26, the tax-free limit is:
For example, with 10 completed years of service, the tax-free amount is $13,100 + $65,520 = $78,620. Any amount exceeding this limit is treated as an ETP and taxed accordingly.
This tax-free treatment only applies to genuine redundancies where the position is no longer required. It does not apply to voluntary resignation, misconduct, or reaching retirement age.
Employment Termination Payments (ETPs)
ETPs are payments made because of the termination of employment, such as severance pay, gratuities, or golden handshakes. They are taxed under ATO Schedule 11 with concessional caps.
| Component | Tax rate (incl. Medicare) |
|---|---|
| Within cap — below preservation age | 32% (30% + 2% ML) |
| Within cap — at/above preservation age | 17% (15% + 2% ML) |
| Above cap | 47% (45% + 2% ML) |
ETP caps for 2025-26
- ETP cap: $260,000 — applies to excluded ETPs (genuine redundancy excess, invalidity, early retirement)
- Whole-of-income cap: $180,000 — for non-excluded ETPs, the cap is the lesser of $260,000 and ($180,000 minus your other taxable income)
The preservation age for 2025-26 is 60 for most people (born after 30 June 1964).
What counts as a lump sum payment?
The ATO classifies termination payments into different categories:
- Lump Sum A — Unused annual leave and long service leave (covered by this calculator)
- Lump Sum B — LSL accrued from 16 Aug 1978 to 17 Aug 1993 (taxed at 32%)
- Lump Sum D — Tax-free genuine redundancy component
- Lump Sum E — Back pay, salary owed, payment in lieu of notice
- ETP — Severance, gratuity, golden handshake (separate from leave)
Note: Payment in lieu of notice and back pay (Lump Sum E) are taxed as ordinary income at marginal rates and are not covered by the concessional leave rates.
Frequently asked questions
How is unused annual leave taxed in Australia?
For normal termination: leave accrued before 18 August 1993 is taxed at a flat 32%. Leave accrued after that date is taxed at your marginal tax rate (added to your other income for the year). For genuine redundancy: all annual leave is taxed at the concessional flat 32% rate.
How is unused long service leave taxed?
LSL has three accrual periods: pre-16 Aug 1978 (only 5% assessable at marginal rates), 16 Aug 1978 – 17 Aug 1993 (32% flat), and post-17 Aug 1993 (marginal rates for normal termination, 32% flat for genuine redundancy).
What is the genuine redundancy tax-free amount for 2025-26?
The tax-free component is $13,100 plus $6,552 for each completed year of service. For example, 10 years of service gives a tax-free amount of $78,620. This only applies to genuine redundancies — not resignation or misconduct.
What is the difference between leave payments and ETP?
Leave payments (Lump Sum A) are your accrued annual leave and long service leave paid out on termination. ETPs are additional payments like severance, gratuities, or golden handshakes. They have different tax schedules (Schedule 7 for leave, Schedule 11 for ETPs).
What is the 32% flat rate for leave?
The 32% rate includes the 2% Medicare levy (i.e. 30% + 2%). It applies to pre-1993 annual leave, mid-period LSL, and all leave paid as part of a genuine redundancy. For most taxpayers earning over $45,000, this 32% rate is lower than their marginal rate.
Are leave payouts included in my tax return?
Yes. Unused leave payments are assessable income shown on your payment summary. The withholding rates applied by your employer may differ from the actual tax assessed when you lodge your return, so you may receive a refund or owe additional tax.