Redundancy Payout in Australia: Tax, Super and What to Do With It
Being made redundant is stressful, but a redundancy payout can also be one of the biggest lump sums you'll ever receive. Handled well, it can clear debt, boost your super, or even become the bridge to an early retirement. Handled poorly, it can be taxed more than it needs to be and quietly disappear into everyday spending.
The first rule is simple: don't rush. Most of the important decisions don't need to be made in the first week. Pay attention to the few that do, such as tax, super contribution timing and protecting your cashflow, and take your time on everything else.
What's actually in a redundancy payout?
A redundancy payout is rarely one single amount. It's usually made up of several parts, and each part can be taxed differently:
Redundancy (severance) pay: the amount paid because your role no longer exists, often based on your years of service.
Payment in lieu of notice: if your employer doesn't require you to work out your notice period.
Unused annual leave and leave loading.
Unused long service leave.
Final wages and super: your last pay, plus any superannuation guarantee owed on ordinary earnings.
Before doing anything else, ask your employer or payroll for a written breakdown of each component. Check it against your employment contract, enterprise agreement or award. Mistakes do happen, and they are much easier to fix before the money is paid.
How is a redundancy payout taxed in 2026–27?
If your redundancy is genuine, part of it is tax-free. A genuine redundancy generally means your role was abolished (not that you resigned or were dismissed for performance), the payment is more than you'd normally receive for resigning, and you're under Age Pension age (67) when your employment ends.
For 2026–27, the tax-free amount is:
$13,598 + $6,801 for each complete year of service
For example, someone with 10 complete years of service can receive up to $81,608 tax-free ($13,598 + 10 × $6,801).
Anything above that limit, and most other components, is taxed at concessional rates rather than your normal marginal rate:
Component | How it's taxed (2026–27) |
Genuine redundancy pay, up to the tax-free limit | Tax-free |
Redundancy pay above the limit and payment in lieu of notice (an employment termination payment, or ETP) | 17% if you've reached preservation age (60), 32% if under 60. Applies up to the ETP cap of $270,000; amounts above the cap are taxed at 47% |
Unused annual leave and leave loading | Maximum 32% |
Unused long service leave accrued after 15 August 1978 | Maximum 32% |
Unused long service leave accrued before 16 August 1978 | Only 5% is taxed, at your marginal rate |
Rates include the 2% Medicare levy.
If the redundancy isn't genuine (for example, you're over 67, or the role wasn't actually abolished), the whole payment is generally treated as an ETP. In that case a lower $180,000 "whole-of-income" cap can also apply, reduced by your other taxable income for the year.
Your employer withholds tax on the payout, but the final amount is worked out when you lodge your tax return.
Can you put your redundancy payout into super?
You can't roll a redundancy payment directly into super; that option ended in 2007. But once the money is in your bank account, you can make contributions from it, subject to the 2026–27 caps:
Concessional (tax-deductible) contributions: up to $32,500 a year, including your employer's contributions. If your total super balance was under $500,000 on 30 June 2026, you may also be able to use unused caps from the previous five years. That could allow you to claim a deduction of well over $100,000 in one year.
Non-concessional (after-tax) contributions: up to $130,000 a year, or up to $390,000 in one go under the bring-forward rule, depending on your total super balance.
The year you're made redundant is often a high-income year: a full or part year of salary plus leave payouts. A well-timed deductible contribution can reduce the tax on that income, and the money then grows in a lower-tax environment.
The catch: the order of contributions, the deduction paperwork (a notice of intent must be lodged with your fund before you claim) and how the deduction interacts with the ETP all need to be done correctly. Get it wrong and you can lose the deduction or exceed a cap.
What should you do with your redundancy payout?
There's no one right answer. It depends on whether you'll be back at work in a month or never. But this order works for most people:
Park it somewhere safe first. A mortgage offset account or high-interest savings account keeps the money accessible while you decide. There's no prize for investing it in week one.
Build your runway. Work out your actual monthly spending and set aside enough to cover 6–12 months, depending on how quickly you expect to find work. This takes the pressure off the job search, so you don't have to accept the first offer.
Check your insurance before it lapses. Life, TPD and income protection cover through your employer's super fund can reduce or stop when you leave, or when contributions to that fund stop. Some funds let you keep cover if you act within a set window, often without new medical questions. Losing cover at the same time as losing your income is a real risk.
Clear expensive debt. Credit cards, personal loans and car loans are usually the best guaranteed return available. Your home loan is a closer call; money in an offset does almost the same job while staying accessible.
Use the super opportunity. If you won't need some of the money before retirement, a deductible or after-tax contribution in the right financial year can save thousands in tax (see above).
Invest the rest with a plan. Once your runway, debts and super are sorted, any surplus can be invested in line with your goals and timeframe, inside or outside super.
If you're likely to need Centrelink support, be aware that a redundancy payout and your savings can delay when payments like JobSeeker start, through the income maintenance period and liquid assets waiting period.
Is redundancy your chance to retire early?
For many people in their mid-50s and 60s, a redundancy forces a question they were planning to ask anyway: can I afford to stop now?
A few things work in your favour:
If you're 60 or over and your employment ends, you generally meet a condition of release, so your super becomes fully accessible.
You can move up to $2.1 million (the 2026–27 transfer balance cap) into a retirement-phase pension, where investment earnings are tax-free and payments from age 60 are tax-free.
Your redundancy payout can act as a bridge. It can fund your lifestyle until you reach 60, or until the Age Pension starts at 67, so your super keeps growing.
The real question isn't whether you can access the money; it's whether it will last. That depends on what you actually spend, how your investments are structured and how long you're planning for. Our articles on how to retire early before 60 and how long $500,000 lasts in retirement go deeper on this.
How we model your options
This is where modelling makes the difference. When a client is facing redundancy, we build a personalised year-by-year projection of their super, payout, spending, tax and Age Pension entitlements. Then we put the options side by side: retire now, work part-time for a few years, or return to full-time work.
We also stress-test each scenario against lower investment returns, higher spending and living longer than expected. That way you know not just whether you can retire, but how much buffer you have.
In this simplified example, retiring at 57 uses up the couple's savings by 81. Working five more years, even while saving only a modest amount, means their savings could last well beyond 95. Your own projection will look different, which is exactly why it's worth modelling.
Common redundancy mistakes to avoid
Not checking the calculation. Years of service, leave balances and whether the payment is treated as genuine all affect how much you keep.
Letting it blend into everyday spending. A lump sum sitting in your everyday account tends to disappear. Separate it on day one.
Paying off the mortgage with your safety net. Money paid off a loan is hard to get back if your job search takes longer than expected. An offset gives you the same interest saving without locking it away.
Missing the super window. Contribution caps are per financial year, and the paperwork for deductions has strict deadlines.
Losing insurance cover without realising. Check before you roll over or close your old employer's super fund.
Making big decisions under stress. Buying a business, investing in a "hot tip" or lending to family are all decisions that can wait a few months.
Get your redundancy plan right the first time
A redundancy payout is a once-off opportunity. The tax, super and cashflow decisions you make in the first few months can be worth tens of thousands of dollars over the long term.
At Source Wealth, we help you work out how much runway you need, maximise your super contributions in the right financial year, protect your insurance, and decide whether this is the moment to retire or the start of your next chapter.
Received a redundancy payout of $100k+? Book a free initial appointment before you make any big decisions.
Michael Sauer, Certified Financial Planner, Source Wealth
Disclaimer: This article contains general information only and does not take into account your personal objectives, financial situation or needs. Before acting on any information, you should consider its appropriateness to your circumstances and seek personal financial and tax advice. Tax rates and thresholds are for the 2026–27 financial year and may change. Source Wealth Pty Ltd is an authorised representative of Lifespan Financial Planning Pty Ltd, AFSL 229 892.
Comments