TACTICAL SOLUTIONS FINANCIAL PLANNING HAS MOVED!

Bernard Fehon and Tactical Solutions Financial Planning have recently merged with Invest Blue Financial Planning.

To contact Bernie or to find out more about Invest Blue make an enquiry below

Like A Quick Contact?


We look forward to hearing from you soon
www.investblue.com.au

Subscribe to Newsletter



Wednesday, 07 December 2011 14:55

New Year New Job

Written by  Bernard Fehon
Rate this item
(0 votes)

If you have been with your employer for at least five years and are thinking about leaving your job this financial year - even if you are being made redundant, you can take advantage of temporary rules that can save you tax and get maximum benefit from your super contributions.


In 2007, major reforms to super changed the tax treatment and limited your options in how you receive termination payments from your employer. Fortunately, the government recognised the disruption that these changes were likely to cause and introduced a set of temporary rules.
These temporary rules operate until 30 June, 2012. If you are eligible to apply these rules, you may be able to:

  • pay less tax on certain termination payments taken as cash, and
  • direct certain termination payment to super.        

Temporary rules criteria                                                          
Your financial adviser can help you determine if you qualify for these temporary rules. Remember, the rules will only be available until 30 June 2012.
You qualify if you meet all the following requirements:

  • you leave your job and your employer provides you with a termination payment before 1 July 2012
  • the termination payment you receive has been determined based on your employment contract
  • the employment contract has been in effect since 9 May 2006 and contained the method or formula for determining the value of the termination payment.

Case study
Derek, aged 54, is made redundant in December 2011. Upon leaving his employer, Derek receives a $70,000 employment termination payment, comprising unused sick leave and the taxable portion of his redundancy payment.

Derek’s employment contract sets out the method for calculating his $70,000 termination payment. This contract has been in force since 9 May 2006 and had not been amended. He therefore qualifies for the temporary rules. As a result, Derek has two options: he can take the $70,000 termination payment in cash or instruct his employer to direct it to his super fund.

If Derek decides to receive the payment as cash, he pays tax of $22,050 (plus flood levy).
However, if Derek instead instructs his employer to direct his entire termination payment to his super fund, Derek will only have $10,500 tax deducted - saving $11,550 in tax.
Once Derek reaches age 55 and permanently retires he can withdraw the $70,000 from his super fund as a tax free lump sum payment (as he would be entitled to the $165,000 tax free threshold). Alternatively, if Derek plans to keep on working, he can commence a transition to retirement income stream and start to gradually draw down on his super as pension payments. These pension payments would be taxable to Derek however he would be entitled to a 15% tax rebate. Any payments Derek receives from age 60 would then be tax free.
What about me?
If you are planning on leaving your job or are being made redundant this financial year please speak with us to ensure you are making the best financial decisions in regards to your termination payments.

What you need to know
Information current as at August 2011. This article contains general information only. It does not take into account your objectives, financial situation or needs. Please consider the appropriateness of the information in light of your personal circumstances. If you decide to purchase or vary a financial product, your financial planner, our practice, AMP Financial Planning and other companies within the AMP Group will receive fees and other benefits, which will be a percentage of the premium you pay and/or the advice fee you agree with us. Some of the information in this article is based on our interpretation of the law. It is a summary of the subject matter covered and is not intended to be tax advice. No reader should act on the basis of this article without obtaining specific professional advice. Further details are available from your planner or AMP Financial Planning Pty Limited, telephone 1300 157 173.

Last modified on Wednesday, 22 February 2012 12:00
More in this category: Is retirement on your radar? »

Leave a comment

Make sure you enter the (*) required information where indicated.
Basic HTML code is allowed.