Lump Sum A – Unused Leave Payment

The amount at lump sum A is paid for unused leave payments. This includes:
* unused long service leave that accrued after 15 August 1978 but before 18 August 1993
* unused annual leave and other related leave that accrued before 18 August 1993, or
* unused long service leave accrued after 17 August 1993, or unused annual leave and other related leave, where the amount is paid in connection with a payment that includes, or consists of, a genuine redundancy payment, an early retirement scheme payment or the invalidity segment of an employment termination payment or super benefit.
All of this amount is taxable. The maximum rate of tax is 30% plus the applicable Medicare levy rate.

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Lump Sum B – Not Used Anymore

The amount at lump sum B is paid for unused long service leave which accrued before 16 August 1978. Only 5% of this amount is taxable.

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Lump Sum D – Bona-fide / Genuine Redundancy – Payment

The amount at lump sum D represents a tax free genuine redundancy payment or early retirement scheme payment below the tax free threshold. This amount is not taxable. Do not include it on your income tax return.

What is redundancy?

Redundancy occurs when a job is no longer required to be performed – the job has become redundant – not you.

Redundancies can be voluntary or compulsory and can occur for a number of reasons, such as:

• economic slowdown
• re-structures
• mergers, takeovers or acquisitions, and
• new technology advancements automate roles that were performed manually.

Generally, a genuine redundancy payment arises if your employer has determined that your position no longer exists, you’re not replaced by another employee, you’re under 65 years old, you’re not retiring and you’re not being dismissed for other reasons (such as disciplinary or performance).

What are the components of a bona-fide redundancy?

Depending upon your Award or Enterprise agreement, a bona-fide redundancy can include the following payments:

• payment in lieu of notice
• severance payment of a number of weeks’ pay for each year of service
• a gratuity or ‘golden handshake’.

What is the tax treatment of a bona fide redundancy?

A genuine redundancy payment is made up of two components:

• A TAX FREE amount (Lump Sum D)
• An assessable amount (Taxed at marginal Rates)

What is a Lump Sum D Payment

A Lump Sum D payment is also known as a Bona Fide Redundancy Payment – whereby a taxpayer is dismissed for a reason of genuine redundancy.
If you’re leaving your employer as a result of a genuine redundancy, some (or all) of your payment will be tax-free.

The maximum amount of a genuine redundancy payment you can receive tax-free depends on the year the genuine redundancy payment is paid in – see table below.

How are Genuine Redundancy Reported to ATO and to Employee?

Employees Payment Summary / Income Statement

This tax-free part of redundancy and early retirement payments is shown at Label D on the employee’s PAYG Payment Summary / Income Statement on MyGov, but will not be included on the tax return.

ATO

For employers using STP, these payments are not required to be reported to the ATO but will be accepted by the ATO if the employer chooses to do so.

XERO

When processing a redundancy payment in Xero please follow these steps by clicking here: Xero Process a Final Pay for Redundancy 

Tax Return

Lump Sum D amounts are not assessable and are not recorded on the tax return.

Notes

• If the Genuine Redundancy exceeds the tax-free portion listed in the table above, then the excess will be treated as Employment Termination Payment (ETP) for tax purposes and is reported on a PAYG Payment Summary – Employment Termination Payment or Income Statement. Xero Process an ETP for Redundancy
• When processing a genuine redundancy –  Long Service Leave and holiday pay paid as the consequence of a Bona Fide Redundancy are listed as Lump Sum A – Lump Sum A amounts are taxed at a maximum rate of 30 cents in the dollar (this only occurs for genuine redundancy – if not a genuine redundancy then Long Service Leave and Unused Annual Leave are reported as normal Gross Salary.)

Example

Amy has worked for a company for 10½ years and is made redundant in the 2021 tax year under a Bona Fide / Genuine Redundancy Scheme. She has received $74,000 ($70,000 as a genuine redundancy payment and $4,000 for her unused annual leave)

The maximum amount she could receive tax free will be:
$10,989 + (10 x $5,496) = $65,949
That amount will be shown at Lump Sum D on her PAYG Payment Summary and the balance of $4,051 will be treated as an Employment Termination Payment (ETP).

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Lump Sum E – Back Payment

The amount at lump sum E is paid for back payment of certain amounts including a payment of salary or wages which accrued more than 12 months ago. This amount is taxable, but a tax offset may be available.
* An employment termination payment (ETP) cash lump sum on termination of employment, will be issued on a separate PAYG payment summary – employment termination payment (NAT70868) showing full details of the payment.

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What about Superannuation on Lump Sum Payments?