Voluntary Redundancy Tax Australia: Genuine or ETP

General information only. This is not tax or financial advice. Consult a registered tax agent or the ATO before relying on this for a real redundancy decision.

If your employer offers you a voluntary redundancy and you accept it, a common assumption is that “voluntary” means it doesn’t get the tax-free redundancy treatment — that only being pushed out involuntarily counts. That’s not how the ATO draws the line. The question isn’t who raised their hand first. It’s whether the position itself was genuinely abolished.

Voluntary doesn’t mean it’s not “genuine” for tax purposes

A redundancy can still be a genuine redundancy for tax purposes even when you volunteered for it, provided:

• your job is genuinely abolished — the employer no longer needs anyone to do that role, and
• the dismissal is the employer’s decision, even though you put yourself forward for it (in a voluntary redundancy round, the employer is still the one deciding to end your employment and eliminate the position).

What breaks the genuine-redundancy treatment is a payment made simply because you resigned — where you chose to leave and no position was abolished. That’s an ordinary resignation payout, not a redundancy, and it doesn’t get the redundancy tax-free treatment even if your employer calls it a “redundancy payment” internally.

This is settled ATO law, not just a favourable reading. The Commissioner’s Taxation Ruling TR 2009/2 deals with this exact scenario: “In circumstances where an employee volunteers to accept a redundancy package, there may still be a dismissal. This will occur where the decision to terminate employment is still ultimately that of the employer. The termination of employment is a dismissal here because the employer initiates the process and has the final say in whose employment is to be terminated” (TR 2009/2, paragraph 253). The ruling also specifically covers the common case where an employer calls for expressions of interest in a redundancy round — provided the final decision to terminate stays with the employer, that’s still a dismissal, not a resignation, for tax purposes.

There’s also an age condition: genuine redundancy tax treatment requires that you’re dismissed before age pension age. If you’re at or past that age when the redundancy takes effect, the ATO treats it as a “non-genuine redundancy” and the concession doesn’t apply, regardless of how genuinely the role was abolished.

Age pension age vs preservation age — two different thresholds

It’s easy to conflate these because both are age tests that show up around the same conversation, but they govern completely different things:

• Age pension age is the condition that determines whether your payment can be a genuine redundancy for tax purposes at all. Dismissed before it, and the payment can qualify for the tax-free limit described below. Dismissed at or after it, and the ATO treats the payment as a non-genuine redundancy — it’s still taxed as an ETP, but without any tax-free redundancy component, and it’s taxed as ordinary ETP income rather than under the genuine-redundancy rules.
• Preservation age is a superannuation concept — the age at which you can access your super (subject to a condition of release). It has nothing to do with whether your termination payment qualifies as a genuine redundancy. A genuine redundancy payment itself also generally can’t be contributed to or rolled into super merely because you’re over preservation age — the tax-free redundancy amount and the ETP are paid to you directly, taxed under the redundancy/ETP rules, not the super access rules.

The practical takeaway: your redundancy payment’s tax treatment turns on age pension age, not preservation age. Being over preservation age (and therefore able to draw on your super) doesn’t affect your redundancy tax-free limit one way or the other — but it’s still worth factoring into your overall cash-flow plan if you’re weighing whether to also start accessing super around the same time as accepting a redundancy offer.

The 2026-27 tax-free limit

For a payment that qualifies as a genuine redundancy, part of it is tax-free up to a limit that scales with your length of service. For the 2026-27 financial year, the tax-free limit is:

$13,598 base amount + $6,801 for each completed year of service.

This is a whole-of-payment limit, not a per-year cap you draw down — you add the base amount to $6,801 multiplied by your completed years of service with that employer to get the total tax-free ceiling for the genuine redundancy component of your payout.

Worked example: 8 completed years of service

An employee accepts a voluntary redundancy offer after 8 completed years with the same employer, and the role is genuinely abolished as part of a restructure. Their tax-free limit for 2026-27 is:

$13,598 + (8 × $6,801) = $13,598 + $54,408 = $68,006

Any part of the genuine redundancy payment up to $68,006 is tax-free. If the redundancy component of the payout is higher than that, the excess doesn’t stay tax-free — it becomes an ETP.

What happens above the tax-free limit

Amounts paid as part of the genuine redundancy component that exceed the tax-free limit are treated as an employment termination payment (ETP). The ETP isn’t tax-free, but it is taxed concessionally — at a capped rate — up to the ETP cap, which is $270,000 for 2026-27. Above the ETP cap, the excess is taxed at your marginal rate.

For a closer look at how the genuine-redundancy/ETP split works and what can and can’t be included in the genuine redundancy component, see our companion article on genuine redundancy vs ETP.

Your final pay is usually more than just the redundancy payment

A voluntary redundancy payout is rarely just one number. Alongside the genuine redundancy component (tax-free up to the limit, then ETP), your final pay typically also includes:

• Unused annual leave, plus leave loading if it applies to your award or agreement — taxed under its own withholding rules, separate from the redundancy tax-free limit.
• Unused long service leave (LSL), if you’ve accrued it — also taxed separately, with its own treatment depending on when it accrued.

Each of these components sits in a different tax bucket. Our article on how unused leave is taxed on redundancy walks through why leave payments don’t count toward the redundancy tax-free limit, even though they arrive in the same payout.

Decision factors before you accept a voluntary redundancy offer

Because a voluntary offer is still your choice to accept, it’s worth weighing more than just the headline number:

• Payout size versus job-market risk. A generous tax-free component is attractive, but weigh it against how quickly you could find comparable work in your field and how long your payout needs to last you.
• Where you sit in your years-of-service curve. Because the tax-free limit scales with completed years, an offer that lands just before a service-year anniversary is worth less (in tax-free terms) than the same offer a few months later — it may be worth checking your exact completed-years figure before signing.
• Super on the payment components. Genuine redundancy payments themselves aren’t ordinary time earnings, but other components of your final pay (accrued leave, any payment in lieu of notice) can have their own superannuation guarantee treatment — check with your employer’s payroll or a tax agent about which parts of your specific payout attract super.
• Whether the age-pension-age condition applies to you. If you’re close to that age, confirm with your employer or the ATO how the timing of your termination interacts with the genuine redundancy concession.
• What replaces your income in the interim. Redundancy payments can affect eligibility for some Centrelink payments, so factor that into your runway calculation, not just your gross payout.

None of this changes the tax law, but it does change whether accepting the offer — rather than waiting to see if a better one comes, or an involuntary round follows — is the right call for you.

Voluntary redundancy in the Australian Public Service (APS)

APS voluntary redundancy (VR) rounds are a recurring feature of machinery-of-government changes and agency restructures, and they follow the same tax rules above — a VR accepted through an APS process is still a dismissal for tax purposes provided the position genuinely ceases to exist and the agency retains the final say over whose employment ends. The mechanics of an APS VR offer are set out in each agency’s own enterprise agreement, made under the Public Service Act 1999, but the framework is broadly consistent across agencies:

• How it starts. Once an agency identifies an employee as “excess to requirements,” it must hold discussions with the employee about their options before any termination — redeployment to a suitable vacancy, retraining, or an offer of voluntary redundancy. The agency, not the employee, initiates the excess declaration.
• The consideration period. An employee invited to accept voluntary redundancy is generally given about a month to consider the offer, and is entitled to know upfront the exact severance pay, payment in lieu of notice, and leave payout figures before deciding.
• The severance pay formula. APS enterprise agreements typically pay 2 weeks’ salary for each completed year of continuous service, plus a pro-rata amount for part of a year, subject to a minimum of 4 weeks’ salary and a maximum of 48 weeks’ salary. This severance component is what feeds into the genuine redundancy tax-free calculation above — it isn’t itself the tax-free amount, it’s the payment that gets tested against the tax-free limit.
• Notice. Employees terminated as excess generally get 4 weeks’ notice (5 weeks if you’re over 45 with at least 5 years’ continuous service), or payment in lieu.
• Financial advice support. Employees considering a VR offer are typically eligible for a capped reimbursement (commonly around $600) to get independent financial advice before deciding — worth using, given how the tax-free limit, ETP cap, and any super interaction all need to be weighed together.
• The redundancy benefit period. Accepting a VR payment generally excludes you from being re-engaged anywhere in the APS for a set period tied to the size of your severance payment — factor this into any plan to return to public service work.

Because the specific weeks-per-year formula, caps, and notice periods are set in each agency’s enterprise agreement (not by the ATO), always check your own agency’s current agreement for the exact incentive terms — the tax treatment of whatever severance figure you’re offered still follows the genuine-redundancy and ETP rules explained above, regardless of which APS agency you work for.

Run the numbers before you decide

Use the Redundancy/ETP Tax Calculator to estimate your tax-free genuine redundancy amount and the ETP tax on anything above it, and the Redundancy Payout Calculator to check the minimum notice and NES redundancy pay you’re entitled to by years of service. If your termination component (redundancy plus other ETP amounts) needs a closer breakdown against the ETP cap, use the ETP Calculator; for the full final pay picture — unused leave, redundancy and ETP together after estimated withholding — use the Final Pay Calculator so you can compare the complete number against what’s actually on the table.