A "bona fide redundancy" occurs when a person's position is no longer required. If you are dismissed, and someone else is given your job at your company, this is not a bona fide redundancy, on the other hand if your particular position is no longer required, but you are moved elsewhere within the organisation a bona fide redundancy may have occurred.

The fact that employees may have been consulted about their redundancy before it happens is immaterial, so a voluntary redundancy is still usually a bona fide redundancy. The main feature of a bona fide redundancy is that the company no longer requires you to perform the task you used to perform, and your position will not be filled by someone else.

If a redundancy is a bona fide redundancy, you will qualify for a portion of that redundancy to be entirely tax-free. The portion of your bona fide redundancy that is tax free depends on the number of years of completed service with that employer. I emphasise the word completed, because if you work with an employer for 14.99 years the number of years counted in your tax-free portion will be only 14 years.

The formula for the 2001/2002 tax year is:

Tax free amount = $5,295 + ($2,648 * years of service)
The numbers used in this calculation are indexed annually to average weekly ordinary time earnings (AWOTE), a measure of average wages, so in 2002/2003 and onward the numbers will be higher, likewise they were lower in previous years.

So if you had completed 10 years of service with your employer, you would not have to pay tax on the first $31,775 of your bona fide redundancy. This money is not an eligible termination payment (ETP), so it can't be rolled over into superannuation. Not being able to roll it over won't stop you using that money to make a super contribution though, so depending on your situation later on, if you are self-employed you will be able to contribute that to super and claim a tax deduction for it, or if you are employed later you'll be able to make an ordinary undeducted contribution with that money - assuming in both cases that you are otherwise eligible to contribute to super. Click here to see the criterion for contribution eligibility.

Note though that there is an age limit for bona fide redundencies, under s27F ITAA 1936 payments must generally be made before the age of 65, or younger if a younger age was specified by the employer, or if the employee has completed a certain period of service. If you are above this age you won't qualify for a bona fide redundancy, and therefore will not get the tax-free component.