How Unused Leave Is Taxed on Redundancy in Australia (2025-26)
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Primary tax-year context: 2025-26
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General information only. This is not tax or financial advice.
If a redundancy package includes unused annual leave or unused long service leave, the key point is that those amounts are not part of the tax-free genuine redundancy amount.
That is where many payout summaries get misread. People see one large termination figure and assume the whole amount is under the redundancy concession. The ATO does not treat it that way.
What stays outside the genuine redundancy concession
The ATO says you must exclude these amounts from a genuine redundancy payment:
- unused annual leave or leave loading paid on termination
- unused long service leave paid on termination
- ordinary salary, wages, and allowances owing for work done
That means the redundancy concession and the leave tax treatment are separate questions.
Are unused leave payments part of the ETP?
Usually, no.
The ATO says accrued leave payments for unused annual leave and long service leave are not included in the employee’s ETP. They are reported separately, usually as lump sum A or B, depending on the leave type and accrual period.
So a termination package can easily contain:
- a tax-free genuine redundancy amount
- an ETP amount above the tax-free redundancy limit
- unused leave amounts outside both of those buckets
Why the reason for leaving still matters
Unused leave is still taxed under a separate withholding schedule, but the reason for termination can affect that treatment.
The ATO’s Schedule 7 guidance says you first work out whether the leave payment is being made because of:
- genuine redundancy
- invalidity
- an early retirement scheme
- or another kind of termination
That is why two people with similar leave balances can still see different withholding outcomes.
Practical reading of a redundancy payout
If your payout includes leave, do not ask only “what is my redundancy taxed at?”
Instead, split the package into:
- the genuine redundancy amount that may be tax-free up to the indexed limit
- any redundancy excess that may be treated as an ETP
- unused annual leave and leave loading
- unused long service leave
That is the only way to understand whether the final withholding looks reasonable.
Which tool to use next
Use the tools in this order:
- Redundancy Tax Calculator if you need to estimate the tax-free redundancy amount and the ETP portion
- Lump Sum Tax Calculator if the real uncertainty is in unused leave, long service leave, or other termination amounts outside the redundancy concession
Sources
- ATO: Genuine redundancy payments
- ATO: Payments that are ETPs
- ATO: Schedule 7 - Tax table for unused leave payments on termination of employment
- ATO: Accrued leave
Next step
If your concern is “my redundancy package includes leave and I cannot tell what is tax-free, ETP, or leave”, split the components first. The headline payout number is not enough.