Is This Payment Tax-Free?

James Murphy Tax

A client has terminated two builder employees as the next stage of the development is being outsourced to a contracted building company.

One employee was on a fixed-term contract which ended.

The other began with the company on 23/11/15, and the final date is 31/3/2022. This entitles him to pro-rata Long Service Leave.

The company is part of a group with less than 15 employees.

Under the Building and Construction Award 2010, a specific severance/redundancy scheme pays out 8 weeks’ pay for 4 or more years of service. Is this payment tax-free? I have had 2 different answers from the ATO using BAS agent number

I understand the other tax treatment of unused annual leave and unused LSL. I need some help.


From 1.10.2020 The Building Industry Redundancy Scheme Trust (BIRST) has made changes that see most employees terminated by their employer due to genuine redundancy receive their BIRST payment largely tax free provided they are below pension age.

These changes involved amendments to the BIRST trust deed.

This sounds like a genuine bona fide redundancy and the tax-free limit for 2021-22 is $11,341 plus $5,672 for each year of service.

The fact there is less than 15 employees is not relevant in this instance.