{"id":1692,"date":"2024-12-27T14:30:06","date_gmt":"2024-12-27T01:30:06","guid":{"rendered":"https:\/\/www.workstem.com\/au\/blog\/auto-draft\/"},"modified":"2026-03-20T01:41:04","modified_gmt":"2026-03-19T12:41:04","slug":"redundancy-and-etp-tax-implications","status":"publish","type":"post","link":"https:\/\/www.workstem.com\/au\/blog\/redundancy-and-etp-tax-implications\/","title":{"rendered":"Redundancy and ETP Tax Implications"},"content":{"rendered":"<div class='post-index' id='post-index'><a href='###' id='post-index-close'><i class='fa fa-list'><\/i><\/a>\r\n\t\t\t\t<h3 class='post-index-title'>Table of content<\/h3>\r\n\t\t\t\t<div class='post-index-inner' id='post-index-inner'>\r\n\t\t\t\t<ol class='post-index-list'><li class=\"post-index-item\" data-tt=\"title-idx-0\" ><a href=\"###\"title=\"What Is a Redundancy Payment?\">What Is a Redundancy Payment?<\/a><\/li><li class=\"post-index-item\" data-tt=\"title-idx-1\" ><a href=\"###\"title=\"What Is an ETP Payment?\">What Is an ETP Payment?<\/a><\/li><li class=\"post-index-item\" data-tt=\"title-idx-2\" ><a href=\"###\"title=\"Tax Implications of ETP Payments\">Tax Implications of ETP Payments<\/a><\/li><li class=\"post-index-item\" data-tt=\"title-idx-3\" ><a href=\"###\"title=\"Preservation Age\">Preservation Age<\/a><\/li><li class=\"post-index-item\" data-tt=\"title-idx-4\" ><a href=\"###\"title=\"Redundancy vs ETP: What\u2019s the Difference?\">Redundancy vs ETP: What\u2019s the Difference?<\/a><\/li><li class=\"post-index-item\" data-tt=\"title-idx-5\" ><a href=\"###\"title=\"To Wrap Up\">To Wrap Up<\/a><\/li><\/ol>\r\n\t\t\t<\/div><\/div>\r\n\t\t\t<script>\r\n\t\t\t$(function(){\r\n\t\t\t\tvar contIdxHeight = $('#post-index-inner').height()+20;\r\n\t\t\t\t$('#post-index-inner').css('height',contIdxHeight+'px');\r\n\t\t\t\t$('#post-index-close').on('click',function(){\r\n\t\t\t\t\tif($('#post-index-inner').height()>20) {\r\n\t\t\t\t\t\t$('#post-index-inner').css('height',0);\r\n\t\t\t\t\t\t$('#post-index-inner').css('padding-top',0);\r\n\t\t\t\t\t} else {\r\n\t\t\t\t\t\t$('#post-index-inner').css('height',contIdxHeight+'px');\r\n\t\t\t\t\t\t$('#post-index-inner').css('padding-top','20px');\r\n\t\t\t\t\t}\r\n\t\t\t\t});\r\n\t\t\t\t$('.post-index-item').on('click',function(){\r\n\t\t\t\t\tvar tt=$(this).data('tt');\r\n\t\t\t\t\tscrollPosition(document.getElementById(tt));\r\n\t\t\t\t});\r\n\t\t\t});\t\r\n\t\t\t<\/script><div class='post-content-full'><p>When employment ends, understanding the financial and tax implications of a <span style=\"color: #3366ff;\"><a style=\"color: #3366ff;\" href=\"https:\/\/www.workstem.com\/au\/glossary\/redundancy-payment\/\" target=\"_blank\" rel=\"noopener\">redundancy<\/a><\/span> or an ETP payment (Employment Termination Payment) is important. Both terms often cause confusion, yet they have distinct meanings and tax treatments. Let\u2019s dive into this article to see how we break down the differences and explore the tax-free components.<\/p>\n<h2 id=\"title-idx-0\" class=\"icon-anchor\">What Is a Redundancy Payment?<\/h2>\n<p>A redundancy occurs when an employee\u2019s position is no longer required due to restructuring, downsizing, or closure. Genuine redundancy payments are taxed differently from other termination payments, as they often include a tax-free component based on the employee\u2019s years of service.<\/p>\n<p>The tax-free component is calculated using the following formula:<\/p>\n<ul>\n<li aria-level=\"1\"><strong>Base Amount (set annually by the ATO) + (Years of Service \u00d7 Service Amount)<\/strong><\/li>\n<\/ul>\n<p>For the 2024 financial year, the base amount is $11,985, and the service amount is $5,994.<\/p>\n<p><strong>Example:<\/strong><br \/>\nIf an employee with 10 years of service is made redundant:<\/p>\n<ul>\n<li aria-level=\"1\"><strong>Tax-Free Component = $11,985 + (10 \u00d7 $5,994) = $71,925<\/strong><\/li>\n<\/ul>\n<p>This amount is tax-free, with the excess taxed as part of an ETP.<\/p>\n<h2 id=\"title-idx-1\" class=\"icon-anchor\">What Is an ETP Payment?<\/h2>\n<p>An <span style=\"color: #3366ff;\"><a style=\"color: #3366ff;\" href=\"https:\/\/www.workstem.com\/au\/blog\/employment-termination-payments\/\" target=\"_blank\" rel=\"noopener\">ETP payment<\/a><\/span> refers to amounts paid upon termination of employment, excluding redundancy payments. It includes unused leave, gratuities, and golden handshakes. Unlike redundancy payments, ETPs have a concessional tax treatment but are subject to caps.<\/p>\n<p>ETP payments fall into two categories:<\/p>\n<ol>\n<li aria-level=\"1\">Concessional Taxable Component: Taxed at a lower rate, depending on the employee\u2019s age and the applicable cap.<\/li>\n<li aria-level=\"1\">Excess Component: Taxed at the individual\u2019s <span style=\"color: #3366ff;\"><a style=\"color: #3366ff;\" href=\"https:\/\/www.workstem.com\/au\/blog\/how-to-go-about-marginal-tax-rates-for-lump-sum\/\" target=\"_blank\" rel=\"noopener\">marginal tax rate<\/a><\/span>.<\/li>\n<\/ol>\n<h2 id=\"title-idx-2\" class=\"icon-anchor\">Tax Implications of ETP Payments<\/h2>\n<p>The concessional tax rates for the ETP payment depend on the recipient\u2019s age:<\/p>\n<ul>\n<li aria-level=\"1\">Under preservation age: 32% tax on amounts up to the cap<\/li>\n<li aria-level=\"1\">Over preservation age: 17% tax on amounts up to the cap<\/li>\n<\/ul>\n<p>The cap for the 2024 financial year is $235,000.<\/p>\n<p><strong>Example:<\/strong><br \/>\nAn employee under preservation age receives a $50,000 ETP payment:<\/p>\n<ul>\n<li aria-level=\"1\">Taxable Portion = $50,000<\/li>\n<li aria-level=\"1\">Tax Payable = $50,000 \u00d7 32% = $16,000<\/li>\n<\/ul>\n<p><em>*visit the <span style=\"color: #3366ff;\"><a style=\"color: #3366ff;\" href=\"https:\/\/www.ato.gov.au\/businesses-and-organisations\/hiring-and-paying-your-workers\/engaging-a-worker\/in-detail\/taxation-of-termination-payments\" target=\"_blank\" rel=\"noopener\">ATO<\/a><\/span> for latest updates*<\/em><\/p>\n<h2 id=\"title-idx-3\" class=\"icon-anchor\">Preservation Age<\/h2>\n<p>The preservation age is the minimum age at which an individual can access their superannuation savings under Australian law. This age impacts the tax rates applied to ETPs.<\/p>\n<table>\n<tbody>\n<tr>\n<td style=\"text-align: center;\"><strong>Date of Birth<\/strong><\/td>\n<td style=\"text-align: center;\"><strong>Preservation Age<\/strong><\/td>\n<\/tr>\n<tr>\n<td style=\"text-align: center;\">Before 1\/7\/1960<\/td>\n<td style=\"text-align: center;\">55<\/td>\n<\/tr>\n<tr>\n<td style=\"text-align: center;\">1\/7\/1960\u201330\/6\/1961<\/td>\n<td style=\"text-align: center;\">56<\/td>\n<\/tr>\n<tr>\n<td style=\"text-align: center;\">1\/7\/1961\u201330\/6\/1962<\/td>\n<td style=\"text-align: center;\">57<\/td>\n<\/tr>\n<tr>\n<td style=\"text-align: center;\">1\/7\/1962\u201330\/6\/1963<\/td>\n<td style=\"text-align: center;\">58<\/td>\n<\/tr>\n<tr>\n<td style=\"text-align: center;\">1\/7\/1963\u201330\/6\/1964<\/td>\n<td style=\"text-align: center;\">59<\/td>\n<\/tr>\n<tr>\n<td style=\"text-align: center;\">After 30\/6\/1964<\/td>\n<td style=\"text-align: center;\">60<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>Employees who are at or above their preservation age receive more favorable tax treatment on ETPs, such as lower concessional tax rates.<\/p>\n<h2 id=\"title-idx-4\" class=\"icon-anchor\">Redundancy vs ETP: What\u2019s the Difference?<\/h2>\n<ol>\n<li aria-level=\"1\"><strong>Nature:<\/strong> Redundancy applies to positions no longer required due to business reasons, while ETPs cover additional payments like unused leave\/RDO , payments in lieu, unfair dismissal etc.<\/li>\n<li aria-level=\"1\"><strong>Tax-Free Component:<\/strong> Genuine redundancy payment has a tax-free component, reducing tax liability.<\/li>\n<li aria-level=\"1\"><strong>Tax Treatment:<\/strong> ETPs are taxed at concessional rates within caps, whereas redundancy payment may include a larger tax-free component.<\/li>\n<\/ol>\n<h2 id=\"title-idx-5\" class=\"icon-anchor\">To Wrap Up<\/h2>\n<p>Understanding redundancy payment and ETP payment ensures compliance and maximises financial outcomes. By calculating the tax-free component and recognising the concessional tax rates for ETPs, both employers and employees can navigate these payments confidently.<\/p>\n<h3>How Does Workstem Help?<\/h3>\n<p>Simplify your leave &amp; payroll process and ensure accurate pay rates with Workstem\u2019s automated\u00a0<span style=\"color: #3366ff;\"><a style=\"color: #3366ff;\" href=\"https:\/\/www.workstem.com\/au\/product\/payroll\/\" target=\"_blank\" rel=\"noopener\">payroll system<\/a><\/span>. Our pre-built modern\u00a0<span style=\"color: #3366ff;\"><a style=\"color: #3366ff;\" href=\"https:\/\/www.workstem.com\/au\/product\/award-interpretation\/\" target=\"_blank\" rel=\"noopener\">award interpretation software<\/a><\/span>\u00a0covers 122+ awards and 34 EBAs and keeps you up-to-date with penalty rates and other award entitlements.<\/p>\n<p>Choose between our\u00a0<span style=\"color: #3366ff;\"><a style=\"color: #3366ff;\" href=\"https:\/\/www.workstem.com\/au\/pricing\/\" target=\"_blank\" rel=\"noopener\">Standard and Advanced plans<\/a><\/span>\u00a0and enjoy a range of benefits such as Fair Work compliance, an employee self-service App, and custom rule set. We have integrated our system with<a href=\"https:\/\/www.workstem.com\/au\/product\/integrations\/xero\/\" target=\"_blank\" rel=\"noopener\">\u00a0<span style=\"color: #3366ff;\">Xero<\/span><\/a>\u00a0and\u00a0<span style=\"color: #3366ff;\"><a style=\"color: #3366ff;\" href=\"https:\/\/www.workstem.com\/au\/product\/integrations\/netsuite\/\" target=\"_blank\" rel=\"noopener\">Netsuite<\/a><\/span>\u00a0to provide you with a complete\u00a0<span style=\"color: #3366ff;\"><a style=\"color: #3366ff;\" href=\"https:\/\/www.workstem.com\/au\/\" target=\"_blank\" rel=\"noopener\">HR SaaS<\/a><\/span>\u00a0solution for your business.<\/p>\n<p>Book a free demo with our payroll experts. Experience the efficiency and accuracy of\u00a0<span style=\"color: #3366ff;\"><a style=\"color: #3366ff;\" href=\"https:\/\/www.workstem.com\/au\/\" target=\"_blank\" rel=\"noopener\">Workstem\u00a0<\/a><\/span>today!<\/p>\n<article class=\"text-token-text-primary w-full focus:outline-none [--shadow-height:45px] has-data-writing-block:pointer-events-none has-data-writing-block:-mt-(--shadow-height) has-data-writing-block:pt-(--shadow-height) [&amp;:has([data-writing-block])&gt;*]:pointer-events-auto scroll-mt-[calc(var(--header-height)+min(200px,max(70px,20svh)))]\" dir=\"auto\" data-turn-id=\"request-WEB:e8ed6405-8ed2-4ae6-9333-7dc6b0aff62c-2\" data-testid=\"conversation-turn-4\" data-scroll-anchor=\"true\" data-turn=\"assistant\">\n<div class=\"text-base my-auto mx-auto pb-10 [--thread-content-margin:--spacing(4)] @w-sm\/main:[--thread-content-margin:--spacing(6)] @w-lg\/main:[--thread-content-margin:--spacing(16)] px-(--thread-content-margin)\">\n<div class=\"[--thread-content-max-width:40rem] @w-lg\/main:[--thread-content-max-width:48rem] mx-auto max-w-(--thread-content-max-width) flex-1 group\/turn-messages focus-visible:outline-hidden relative flex w-full min-w-0 flex-col agent-turn\">\n<div class=\"flex max-w-full flex-col grow\">\n<div class=\"min-h-8 text-message relative flex w-full flex-col items-end gap-2 text-start break-words whitespace-normal [.text-message+&amp;]:mt-1\" dir=\"auto\" data-message-author-role=\"assistant\" data-message-id=\"f7f6aadf-5859-41b6-aa76-8d83eab3153c\" data-message-model-slug=\"gpt-5-1-thinking\">\n<div class=\"flex w-full flex-col gap-1 empty:hidden first:pt-[1px]\">\n<div class=\"markdown prose dark:prose-invert w-full break-words light markdown-new-styling\">\n<h2 data-start=\"1710\" data-end=\"1996\">Read More<\/h2>\n<h3 data-start=\"1710\" data-end=\"1996\">Termination &amp; Payroll<\/h3>\n<p data-start=\"242\" data-end=\"321\"><span style=\"color: #3366ff;\"><a style=\"color: #3366ff;\" href=\"https:\/\/www.workstem.com\/au\/blog\/redundancy-pay-in-australia-calculating-severance-entitlements-under-the-nes\/\" target=\"_blank\" rel=\"noopener\"><em>Redundancy Pay in Australia: Calculating Severance Entitlements Under the NES<\/em><\/a><\/span><\/p>\n<p data-start=\"242\" data-end=\"321\"><span style=\"color: #3366ff;\"><a style=\"color: #3366ff;\" href=\"https:\/\/www.workstem.com\/au\/blog\/redundancy-guide\/\" target=\"_blank\" rel=\"noopener\"><em>The Ultimate Employee Redundancy Guide<\/em><\/a><\/span><\/p>\n<p data-start=\"242\" data-end=\"321\"><em><span style=\"color: #3366ff;\"><a style=\"color: #3366ff;\" href=\"https:\/\/www.workstem.com\/au\/blog\/how-to-go-about-marginal-tax-rates-for-lump-sum\/\" target=\"_blank\" rel=\"noopener\">How to Go About Marginal Tax Rates for Lump Sum?<\/a><\/span><\/em><\/p>\n<h3 data-start=\"242\" data-end=\"321\">Final Pay &amp; Termination Payments<\/h3>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/article>\n<p aria-hidden=\"true\" data-edge=\"true\"><span style=\"color: #3366ff;\"><a style=\"color: #3366ff;\" href=\"https:\/\/www.workstem.com\/au\/blog\/how-to-calculate-leave-and-termination-payments-final-pay\/\" target=\"_blank\" rel=\"noopener\"><em>Final Pay in Australia: How to Calculate Leave and Termination Payments<\/em><\/a><\/span><\/p>\n<p aria-hidden=\"true\" data-edge=\"true\"><em><span style=\"color: #3366ff;\"><a style=\"color: #3366ff;\" href=\"https:\/\/www.workstem.com\/au\/blog\/employment-termination-payments\/\" target=\"_blank\" rel=\"noopener\">A Guide to ETP (Employment Termination Payments)<\/a><\/span><\/em><\/p>\n<p aria-hidden=\"true\" data-edge=\"true\"><em><span style=\"color: #3366ff;\"><a style=\"color: #3366ff;\" href=\"https:\/\/www.workstem.com\/au\/blog\/final-pay-calculation\/\" target=\"_blank\" rel=\"noopener\">How to Calculate Final Pay: A Comprehensive Guide<\/a><\/span><\/em><\/p>\n<h3 aria-hidden=\"true\" data-edge=\"true\">Payroll Compliance &amp; Common Mistakes<\/h3>\n<p><span style=\"color: #3366ff;\"><a style=\"color: #3366ff;\" href=\"https:\/\/www.workstem.com\/au\/blog\/7-common-payroll-mistakes-australian-employers-make-and-how-to-avoid-them\/\" target=\"_blank\" rel=\"noopener\"><em>7 Common Payroll Mistakes Australian Employers Make (and How to Avoid Them)<\/em><\/a><\/span><\/p>\n<\/div>","protected":false},"excerpt":{"rendered":"<p>Table of content What Is a Redundancy Payment?What Is an ETP Payment?Tax Implications of ETP PaymentsPreservation AgeRedundancy vs ETP: What\u2019s the Difference?To Wrap Up When employment ends, understanding the financial and tax implications of a redundancy or an ETP payment (Employment Termination Payment) is important. Both terms often cause confusion, yet they have distinct meanings&#8230;<\/p>\n","protected":false},"author":16,"featured_media":1713,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[46,48],"class_list":["post-1692","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uncategorized","tag-payroll","tag-stp"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.1.1 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Redundancy and ETP Tax Implications - Workstem Australia<\/title>\n<meta name=\"description\" content=\"Genuine redundancy payments are taxed differently from other termination payments, as they often include a tax-free component based on the employee\u2019s years of service.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.workstem.com\/au\/blog\/redundancy-and-etp-tax-implications\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Redundancy and ETP Tax Implications - 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