If you are leaving your employer due to redundancy, you have a great opportunity to make a fresh start.
Now could be the best time for you to think about a career change, become self-employed or consider retiring if you are close to retirement. But regardless of what your next steps might be, it’s important that you:
Note: The information in this article assumes you’re departing due to a genuine redundancy. This will generally be the case if you are under your age pension age[1], your employer has determined that your position no longer exists and you are not replaced by another employee.
Types of payments
The types of payments you may receive in the event of a genuine redundancy include:
Each of these payments are paid as cash less any applicable taxes. The table in the Appendix summarises the tax treatment of common payments in the 2020/21 financial year that may be received in the event of a genuine redundancy.
Financial issues to consider
When you take a redundancy, you will need to decide what you are going to do with the payments you are eligible to receive. Other financial issues you may need to consider will depend on whether you intend to find a new job, or you plan to retire.
If you plan on finding a new job, some of the important questions you should address include:
Some key questions to consider if you’d like to retire upon leaving your employer are:
Value of advice
After reading this information, we can help you:
by having appropriate insurance cover, and
We can also assist you with a range of other needs which may include:
To find out more, contact Michael Mazalevskis on (08) 93898871
Appendix – tax treatment of payments
| Payment | Maximum tax payable in 2020/21 | ||
| Genuine redundancy payment | Tax-free up to a maximum of $10,989[1] + ($5,4963 x each completed year of service) | ||
| Employment Termination Payment[2] | |||
| § Tax-free component | Nil | ||
| § Taxable component[3] | |||
| – If under preservation age[4] | – First $215,000[5] taxed at 32%[6] and excess taxed at 47%8 | ||
| – If preservation age5 or over | – First $215,0006 taxed at 17%8 and excess taxed at 47%8 | ||
| Accrued annual leave | 100% of payment taxed at maximum rate of 32%8 | ||
| Accrued long service leave[7] | |||
| § To15/08/1978 service | § 5% of payment taxed at your marginal rate | ||
| § From16/08/1978 service | § 100% of payment taxed at maximum rate of 32%8 | ||
| Final pay | 100% of payment taxed at your marginal rate | ||
Important information and disclaimer
This article has been prepared by Advice Line Australia Corporate Representative of Lifespan Financial Planning. Any advice provided is of a general nature only. It does not take into account your objectives, financial situation or needs. Please seek personal advice before making a decision about a financial product. Information in this article is current as at 1 July 2020. While care has been taken in the preparation of this article, no liability is accepted by Advice Line Australia, Lifespan Financial Planning or its related entities, agents or employees for any loss arising from reliance on this article. Any opinions expressed constitute our views at the time of issue and are subject to change. Case studies are for illustration purposes only. Any tax information provided in this article is intended as a guide only. It is not intended to be a substitute for specialised tax advice. We recommend that you consult with a registered tax agent.
[1] Your pension age depends on your date of birth. Currently age pension age is 66 and increasing to 67 by 2023.
[2] To be able to access your superannuation to commence an income stream you must have reached your preservation age5.
[3] This threshold is indexed on 1 July of each year.
[4] A different tax treatment may apply to ETPs received when leaving an employer voluntarily or where a redundancy is not considered
as genuine.
[5] If you receive an ETP that reasonably could be expected to be received as a result of a voluntary termination of employment and that
payment causes your income to exceed $180,000 (the ‘whole of income’ cap), the part of the ETP that causes
your income to exceed $180,000 will not be subject to a tax offset and will be taxed at 47% including the Medicare Levy.
[6] For those born before 1 July 1960, preservation age is 55. For those born on or after 1 July 1960, your preservation age will depend on
your date of birth. For more information see the ATO website (www.ato.gov.au)
[7] This is the ETP cap. This cap is current for 2020/210 and is an annual limit that applies to all ETPs received as a result of a genuine
redundancy or other involuntary terminations of employment in a financial year (or related to that year).
[8] Includes Medicare Levy.
[9] In some cases, you’ll need to have worked for your employer for at least 10 years to qualify for long service leave. However,
some employers have a statutory obligation to pay pro-rated long service leave if you are made redundant after five years of service.
