Made redundant in your 50s or 60s: the tax treatment, the super opportunity, and what to plan for

Redundancy in the later career years is one of the more consequential financial events a person can face. Emotionally, it is rarely straightforward. Financially, it is an event that rewards preparation — because the tax treatment, the superannuation contribution opportunities, and the choices around what to do with the payment can together produce materially better or worse retirement outcomes depending on what happens in the weeks and months that follow.

What makes a redundancy "genuine" for tax purposes?

The ATO distinguishes between a genuine redundancy and other forms of termination, because the tax treatment is substantially more favourable. A genuine redundancy — broadly, one where the position itself is no longer required because of business restructuring, the dismissal is the employer's decision rather than the employee's, and the employer and employee are dealing at arm's length — receives access to a tax-free threshold that other termination payments do not. The "genuine" requirement exists because it is the employer's operational decision, not the employee's personal choice to leave, that justifies the concession.

Until 2019, the favourable tax treatment cut out entirely once a worker reached age 65. The Treasury Laws Amendment (2019 Tax Integrity and Other Measures No. 1) Act 2019 aligned that cutoff with the Age Pension age — currently 67 for anyone born on or after 1 January 1957 (DSS Social Security Guide 3.4.1.10). Workers in their mid-to-late 60s who continue working past traditional retirement age can now access the same tax concessions as younger redundancy recipients, provided the redundancy is genuinely the employer's decision.

How is the tax-free threshold for genuine redundancy calculated?

The centrepiece of the tax concession is a threshold calculated as a base amount plus a per-year amount for each completed year of service. For FY2026-27, the base amount is $13,598 and the per-year amount is $6,801 (ATO, indexed annually under ITAA 1997 s.83-170). For a long-serving employee, this threshold is meaningful:

• 10 completed years of service: threshold of $81,608
• 20 completed years: threshold of $149,618
• 25 completed years: threshold of $183,623
• 30 completed years: threshold of $217,628

The amount up to this threshold is genuinely tax-free — not concessionally taxed, not added to assessable income, not subject to later clawback. For someone with a long employment tenure, capturing this threshold in full is a significant financial outcome in its own right.

What happens to the portion of the redundancy above the tax-free threshold?

The portion of a genuine redundancy payment that exceeds the tax-free threshold is treated as an Employment Termination Payment (ETP), and different tax rates apply. Within the ETP cap — $270,000 for FY2026-27 — the taxable component is taxed at concessional rates: 17% if the recipient has reached their preservation age (60 for most people born after 30 June 1964), or 32% if below preservation age. Amounts above the ETP cap lose the concessional rate and are taxed at the top marginal rate. For most genuine redundancy packages, careful attention to how the payment is structured means a significant portion is received at the tax-free or concessional rate rather than the marginal rate.

What superannuation contribution opportunities does a redundancy payment create?

The tax concessions on the redundancy itself are only half the picture. The cash received creates specific superannuation contribution opportunities that, in the right circumstances, can transform a retirement balance in a single financial year.

The taxable portion of the redundancy can be offset by making a personal deductible contribution into superannuation — claiming a tax deduction under ITAA 1997 s.290-150. The deduction reduces assessable income, and the contribution is taxed at 15% inside the fund, which for most people in their 50s and 60s is well below the marginal rate they would otherwise pay on the cash. The concessional contributions cap is $32,500 for FY2026-27, which limits this alone — but carry-forward provisions allow members whose Total Super Balance was below $500,000 at the prior 30 June to use unused concessional cap from the past five years. In 2026-27, the maximum available carry-forward (assuming minimal prior contributions since 2021-22) is $175,000. For the right candidate, this makes it possible to push a very substantial sum into super as a deductible contribution in the year of redundancy.

The after-tax component of the redundancy — money that has already been taxed — can be contributed as a non-concessional contribution (NCC), subject to the NCC cap of $130,000 for FY2026-27. If a member's Total Super Balance is below $1.84 million at the prior 30 June, the three-year bring-forward provision allows NCCs of up to $390,000 in a single financial year. For a redundancy recipient with an intact super balance and a substantial after-tax lump sum, the combination of deductible contributions and the NCC bring-forward can move very significant sums into the 15% concessional tax environment inside super — or into pension phase where earnings are taxed at zero.

How does a redundancy payment interact with the Age Pension?

For workers approaching or past 67, the redundancy payment creates a specific Centrelink consideration. Once the lump sum is received, it sits as a financial asset in the assets test and generates deemed income under the income test, regardless of whether it is held in a bank account or invested. The interaction between the timing of the redundancy, the deployment of the proceeds into super, and the subsequent Age Pension claim can be significant — and is worth modelling before the proceeds are spent or allowed to sit in cash.

For workers still some years short of 67 who are applying for JobSeeker, the leave and termination components of the package may trigger an income maintenance period during which the payment is not available, depending on the structure of the severance. The rules are specific and not intuitive — specialist advice before making any Centrelink application is worth the effort.

What steps should you take after receiving a redundancy in your 50s or 60s?

The practical sequence for anyone facing redundancy in their 50s or 60s is: first, understand the structure of the package and whether it qualifies as a genuine redundancy for tax purposes; second, get the tax modelling done before signing the deed of release, because some elements are easier to address before settlement than after; third, identify the super contribution opportunities and any carry-forward concessional capacity; and fourth, map the Centrelink interaction, particularly if retirement is close. An accountant, a financial adviser who understands superannuation, and an employment lawyer working together typically produce a better outcome than any one of them working alone. For a redundancy with substantial dollar implications, the cost of coordinated advice is well within the likely benefit.

Sources

• ATO — Redundancy and early retirement (genuine redundancy tax-free base $13,598 + $6,801 per year of service, FY2026-27)
• ATO — Employment termination payments: key rates and thresholds (ETP cap $270,000, FY2026-27)
• ATO — How ETP components are taxed (17% / 32% concessional rates and preservation age)
• ATO — Genuine redundancy and early retirement scheme changes (2019 alignment of the age limit with Age Pension age)
• ATO — Concessional contributions cap and carry-forward (TSB under $500,000)
• ATO — Non-concessional contributions cap and bring-forward
• Services Australia — Assets test for Age Pension
• Services Australia — Income test for Age Pension (deeming of financial assets)
• Services Australia — Income and assets tests for JobSeeker Payment (income maintenance period)