Redundancy planning

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Redundancy planning
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Agenda

• Taking your redundancy payment in cash
• Taxation of employment termination payments
• When can you access your super?
• Newstart Allowance
• Insurance

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Your redundancy payment

• Your redundancy payment from your employer may
  comprise of a number of different components
  including
• unused annual and long service leave
• payment in lieu of notice period
• a specified number of weeks pay for every year
  of service
• gratuity or golden handshake
• unused rostered days off

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Genuine redundancy

• You may be entitled to certain tax benefits if
  your redundancy is considered to be a genuine
  redundancy
• Your redundancy payment will be tax-free up to a
  certain limit for a genuine redundancy
• The tax-free amount is calculated by multiplying
  your complete years of service with the employer
  by 3,676 and then adding 7,350
• No tax-free amount applies if you are age 65
  years or over
• Your unused annual or unused long service leave
  payments will be taxed, but a lower tax rate may
  apply for a genuine redundancy

2008/09 thresholds, subject to annual indexation
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Employment termination payment

• If you receive an amount above the tax-free limit
  and any unused annual and long service leave,
  then the extra amount is called an employment
  termination payment
• From 1 July 2007 employment termination payments
  must be taken in cash except where the
  transitional rules apply
• Possible uses of your lump sum may include
• paying off debt
• covering living expenses while looking for work

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Transitional employment termination payment

• Employment termination payments can be
  contributed to super under a transitional
  arrangement.
• Transitional arrangements
• entitled as at 9 May 2006, to a payment on
  termination of employment under a written
  contract, Australian or foreign law, legal
  instrument or workplace agreement made under the
  Workplace Relations Act 1996, and
• the payment is made to the super fund before 1
  July 2012
• If contributed to super the taxable component
  will be taxed at 15 (limit of 1 million)

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Contributing your employment termination payment

• Can only be contributed if transitional rules are
  satisfied
• 1 million lifetime limit for an exemption from
  contribution caps
• Treated as contribution, therefore contribution
  rules must be satisfied
• Under 65 no work test
• Between 65 74 - must be working 40 hours over
  30 consecutive days in the current financial year
  
• The taxable component contributed is taxed at 15
  by the super fund
• Social security advantages

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Accessing your super

• From age 60, ceasing work with your current
  employer will allow you to access your super
  (permanent retirement not required)
• If you have reached your preservation age and not
  yet retired, you can also access your super as a
  non-commutable pension
• This may allow you to work part-time and receive
  a top-up from your super to help maintain your
  living standard
• You will also have access to your super from age
  65 whether or not you are still working

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Taxation of employment termination payments
Rates as at 2008/09 and include Medicare levy.
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Unused leave payments

• A lower rate of tax may apply to leave payments
  where received as a result of genuine redundancy

Plus Medicare levy
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Case study

• Tony, age 49, started work on 1 July 1988 and was
  made redundant on 1 October 2007. He receives a
  redundancy payment of 260,000. This includes
  50,000 for unused long service leave.
• The tax payable by Tony is calculated below
• Tony would receive 202,416 after tax

Including Medicare levy
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Newstart Allowance

• You may be eligible for Newstart Allowance while
  you are looking for work
• Basic payment rates are
• Rates _at_ 20 March 2009
• Additional payments and concessions may be
  available

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Income test

• The following income thresholds apply

Rates _at_ 20 March 2009 Fortnightly income
between 62 and 250 reduces fortnightly
allowance by 50 cents in the dollar. For income
above 250 per fortnight, fortnightly allowance
reduces by 60 cents in the dollar. Partner income
which exceeds cut-out point reduces fortnightly
allowance by 60 cents in the dollar.
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Assets test

• You are not eligible for the Newstart Allowance
  if your assessable assets (eg other than your
  family home and super) are more than the
  following limits
• Rates _at_ 20 March 2009
• If you were to contribute your redundancy payment
  into super, you may be able to reduce your
  assessable assets as super is exempt under the
  assets test if you are under Age Pension age

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Activity test

• To meet the activity test, you are required to
  demonstrate to Centrelink that you are actively
  looking for work
• This includes attending all job interviews,
  willing to accept suitable work offers, attending
  approved training programs, etc
• People aged 55 and older have an obligation to
  look for work, but will be able to meet their
  obligation by undertaking part-time work or
  voluntary work, or a combination of these, for 30
  hours or more per fortnight

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Waiting periods

• Liquid assets
• Maximum of 13 weeks
• Will apply if your liquid assets are more than
  10,000 (couple) or 5,000 (single)
• For a couple, the waiting period (in weeks) is
  calculated as
• (liquid assets - 10,000)
• 1,000
• Income maintenance period
• Any payments for unused annual and long service
  leave may result in a waiting period
• Employment termination payments that are cashed
  out will result in a waiting period
• Waiting period based on the number of weeks pay
  that the leave represents
• For example, payment for 3 weeks unused annual
  leave would result in an income maintenance
  period of 3 weeks

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Insurance

• Review any insurance cover you have through your
  current super fund or with your employer and
  check whether you can continue this cover
• Review any new insurance requirements that are
  necessary

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Summary

• Investigate with your financial adviser if you
  are able to contribute your employment
  termination payment into super.
• Determine if you will be eligible for Newstart
  Allowance
• A redundancy provides a good opportunity to
  review your retirement planning
• Seek advice based on your personal circumstances

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Disclaimer

• Important information
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  general information only. It is not intended to
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Questions

• ?