Longserviceleave.com

Guide · Australia

How unused long service leave is taxed

Long service leave that you take during your employment has the same tax as normal pay. Unused leave that your employer pays out when you leave has different tax. That tax depends on when the leave built up and why your job ended. This page gives the ATO rules for 2026-27 in plain words.

By Sri Murugan Systems · Rules last reviewed

  • 4 min read
  • 8 sections

Key points

  • Long service leave that you take during your employment has the same tax as normal salary and wages.
  • Unused long service leave paid on termination is not part of an employment termination payment.
  • Lump sum A has 32% withholding, and its tax rate has a cap of 30% plus Medicare levy.
  • From 1 July 2026, a special rule applies to a post-17 August 1993 lump sum under $300 from a normal termination. If you gave your tax file number, your employer withholds the lesser of the table amount and 32%.
  • Your employer does not pay super guarantee on unused leave paid out when you leave.
On this page
  1. Leave that you take during your employment
  2. Unused leave that your employer pays when you leave
  3. Normal termination: the post-1993 portion
  4. The under-$300 rule from 1 July 2026
  5. The 30% cap on Lump sum A
  6. The tax-free limit for genuine redundancy in 2026-27
  7. Super guarantee on long service leave
  8. Payroll tax (for employers)
  9. Common questions
  10. Related guides

Leave that you take during your employment

Long service leave that you take during your employment is paid as normal salary and wages. Tax is withheld at marginal rates. The regular PAYG tax tables apply.

Some portable schemes are the NSW Long Service Corporation, LeavePlus, NT Build and ACT Leave. These schemes say they use the ATO weekly tax table, based on the weekly rate of the payment.

Unused leave that your employer pays when you leave

Unused long service leave paid on termination is not part of an employment termination payment. Your employer reports it separately as Lump sum A, Lump sum B or normal income. The type depends on when the leave accrued. The ATO's Schedule 7 tax table for unused leave payments applies to payments made from 1 July 2026.

Part of your leaveService periodWithholdingTax in your return
Lump sum BBefore 16 August 19785% of the total, withheld at marginal ratesOnly 5% is taxable
Lump sum A16 August 1978 to 17 August 199332%Capped at 30% plus Medicare levy
Post-17 August 1993 (normal termination)After 17 August 1993Marginal rates, with the Schedule 7 averaging methodIncluded in salary and wages
Genuine redundancy, invalidity or early retirement schemeAll leave after 15 August 197832% as Lump sum ACapped at 30% plus Medicare levy
Check your own numbers

Pick your state. The calculator uses that state's Act and shows the working.

Normal termination: the post-1993 portion

Normal termination means resignation, retirement or dismissal. The post-17 August 1993 portion becomes part of your salary and wages, and marginal tax rates apply to it.

Your employer uses the Schedule 7 averaging method. Divide the payment by the number of pay periods in 12 months. Add the result to the normal earnings for one period. Work out the extra tax. Then multiply that extra tax back by the number of pay periods.

The under-$300 rule from 1 July 2026

This rule applies to the post-17 August 1993 lump sum from a normal termination. If this lump sum is less than $300, your employer withholds the lesser of the table amount and 32% of the payment. This is the Schedule 7 rule from 1 July 2026. It applies when you give your tax file number.

An older ATO page describes a flat 32% when this amount plus unused annual leave is under $300. Schedule 7 from 1 July 2026 is the current rule.

The 30% cap on Lump sum A

A tax offset limits the income tax rate on the pre-18 August 1993 part to 30% (Income Tax Assessment Act 1997 s 83-85). The same cap applies to post-17 August 1993 leave paid with a genuine redundancy, early retirement or invalidity payment. The ATO describes the maximum as 30% plus the applicable Medicare levy. The law sets the 30% and does not index it, so it applies in 2026-27.

The tax-free limit for genuine redundancy in 2026-27

The tax-free amount for a genuine redundancy in 2026-27 is $13,598 plus $6,801 for each complete year of service. For 2025-26 the amount was $13,100 plus $6,552.

This tax-free amount is separate from your leave payment. Unused long service leave paid with a genuine redundancy is not part of it. The tax rules treat that leave as Lump sum A, or as Lump sum B for leave that accrued before 16 August 1978.

Super guarantee on long service leave

SituationSuper guarantee payable?
Leave that you take during your employment, and that your employer paysYes. It is ordinary time earnings up to 30 June 2026. It is qualifying earnings under Payday Super from 1 July 2026
Leave that you cash out during your employmentYes
Leave that a portable scheme paysNo
Unused leave paid out when you leaveNo, whatever the reason or the tax treatment. Awards or agreements can add obligations

Payroll tax (for employers)

The revenue office in every state and territory says that unused long service leave paid on termination counts as taxable wages for payroll tax. Victoria and SA also say that long service leave paid to employees during their employment is taxable.

Common questions

Is unused long service leave part of an ETP?

No. Your employer reports it separately as Lump sum A, Lump sum B or normal income. The type depends on when the leave accrued.

What is Lump sum A?

Lump sum A covers unused leave that accrued from 16 August 1978 to 17 August 1993. It also includes all leave after 15 August 1978 that your employer pays on genuine redundancy, invalidity or early retirement. Withholding is 32%, and the tax rate has a cap of 30% plus Medicare levy.

What happens if my post-1993 leave payout is under $300?

From 1 July 2026, your employer withholds the lesser of the table amount and 32% of the payment. This rule applies if you gave your tax file number.

Is long service leave tax-free on redundancy?

No. The tax-free amount for a genuine redundancy is separate. In 2026-27 it is $13,598 plus $6,801 per complete year. The tax rules treat your leave as Lump sum A, and your employer withholds 32%. Leave before 16 August 1978 is Lump sum B.

Will my employer pay super when it pays out my long service leave?

Not on unused leave that your employer pays when you leave. Super guarantee is payable on leave that you take during your employment, if your employer pays it.

CalculatorTax on a long service leave payout calculatorGuideIs long service leave paid out when you leave?GuideIs super paid on long service leave?GuideLong service leave and Centrelink

Rules last reviewed 3 November 2026. Every figure comes from the state Acts, the regulators and the ATO; see sources and method.

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