From time to time employers offer (or are committed to) redundancy payments for unscheduled termination of employment arrangements: there are a number of issues to consider if you are placed in this situation –
- taxation consequences for each of the elements of the payout;
- superannuation options that may be available; and
- how your payout might impact any entitlement to Centrelink support.
(Voluntary Separation Packages (VSPs) will usually contain similar elements and will be subject to the same considerations.)
The redundancy payout can comprise the following elements:
- Eligible Termination Payments (ETPs) being –
- unused rostered days off;
- amounts in lieu of notice; and/ or
- golden handshakes’;
- Genuine Redundancy payments; and/ or
- Payments for time worked (or ‘leave’ taken or accrued).
Different taxation imposts apply to the various elements. ETPs that comprise the items in 1. above, together with any excess of the genuine redundancy over a prescribed limit – are taxed at a maximum 31.5% during the 2012 financial year (for those under 55 y.o.a.); genuine redundancy up to the prescribed amount is free from tax; and special rates apply to unused annual/ long service leave.
From a financial/ wealth management viewpoint, the way you deal with the after-tax proceeds will need to be strategically determined according to your individual circumstances: some questions at issue include –
- Will you retire as a consequence of this termination?
- Will you require support from Centrelink in the near- or medium-term?
- Can you utilise superannuation to minimise the financial impact of your post-redundancy/ separation event?
Some employers provide financial assistance for redundant employees to obtain relevant wealth management advice in these situations: whether you are in that position or not we strongly recommend that you seek professional advice to ensure that you take advantage of any available benefits/ opportunities before committing the proceeds in a way that might impair your maximum benefits.
Continuum Financial Planners have a team of experienced wealth management advisers available to help you through this process: we operate on a fee for service basis (and rebate any associated commissions back to you). To seek an appointment with one of our team, call our office (07 3421 3456) or use our online facility to Contact Us and arrange for the obligation-free, no cost to you, first meeting.