Work out the tax withheld
ATO Schedule 7 · from 1 July 2026How unused long service leave is taxed when you leave
Unused long service leave paid when your job ends is not an employment termination payment. Your employer withholds tax on it under the ATO's Schedule 7, and how much depends on when the leave built up and why the job ended.
| Leave that built up | Normal termination | Genuine redundancy, invalidity or early retirement |
|---|---|---|
| Before 16 August 1978 | Only 5% is taxed, at your marginal rate | Only 5% is taxed, at your marginal rate |
| 16 August 1978 to 17 August 1993 | Lump sum A: 32% withheld | Lump sum A: 32% withheld |
| After 17 August 1993 | Your marginal rate, using the Schedule 7 averaging method | Lump sum A: 32% withheld |
For Lump sum A, the tax in your return is capped at 30% plus the Medicare levy through a tax offset, so you may get some of the 32% back.
The averaging method
For leave from after 17 August 1993 on a normal termination, the employer spreads the payment over a year of pay periods so it is not taxed as if you earned it all in one week. Divide the payment by the number of pay periods in a year, add that to one period's normal pay, work out the extra withholding using the ATO Schedule 1 formula, and multiply it back by the number of pay periods. The calculator shows each of those numbers.
Common questions
Is long service leave paid out on resignation taxed at 32%?
Not usually. Leave that built up after 17 August 1993 is taxed at your marginal rate, using the Schedule 7 averaging method. The 32% rate (Lump sum A) applies to leave from 16 August 1978 to 17 August 1993, and to all leave from after 16 August 1978 when the job ends through genuine redundancy, invalidity or an approved early retirement scheme.
Why is the tax withheld different from the tax I end up paying?
Withholding is an estimate. Leave taxed at marginal rates is added to your taxable income for the year, so your final tax depends on your income for the whole year. For Lump sum A, a tax offset caps the tax at 30% plus the Medicare levy.
Is super paid on unused long service leave when I leave?
No. The ATO says unused long service leave paid on termination is not ordinary time earnings or qualifying earnings, so the super guarantee does not apply to it. An award or agreement can give more.
What if my payout is less than $300?
For leave from after 17 August 1993 on a normal termination, Schedule 7 says to withhold the lesser of the amount worked out from the table and 32% of the payment.
Official sources
- ATO: Schedule 7, tax table for unused leave payments on termination of employmentAustralian Taxation Office
- ATO: Schedule 1, statement of formulas for calculating amounts to be withheldAustralian Taxation Office
- ATO: Unused long service leave (withholding)Australian Taxation Office
- ATO: What payments are qualifying earnings (super)Australian Taxation Office
Rules last reviewed 3 November 2026. Every figure comes from the Acts, the regulators, the ATO and the AASB; see sources and method.