A/L payout - Tax implication

Discussion in 'Accounting & Tax' started by Foreshadow, 10th May, 2020.

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  1. Foreshadow

    Foreshadow Well-Known Member

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    Hi all,

    I was lucky enough to score a new job just before the covid 19 crisis hit which came with a nice 40k pay rise. I was fortunate at the time to negotiate unpaid leave from my old job giving me the security to see if the new job was a good fit before resigning. I’m at a point now where I need to resign from my old job.

    My question relates to the $25k in leave entitlements I have owing. From my understanding this is just taxed at my normal tax rate? (I’m still within government so can Xfer over my long service leave). Should I be looking at putting some of this into super to reduce tax? I’m Assuming it would be better to finalise this before the eofy as next year I’d be earning more.

    The more I write the more I’m assuming I should be ringing an accountant, I was worried this was a bit trivial for them.
     
  2. wylie

    wylie Moderator Staff Member

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    Definitely call an accountant to look at your particular case. It is not trivial.
     
  3. Mark F

    Mark F Well-Known Member

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    If moving between government departments in the same jurisdiction it used to be common to port annual as well as long service leave to the new job.
     
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  4. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    A tax agent can advise on the merits of making additional super contributions to offset the higher tax. They can also check your catch up concessional cap which may assist. But they cant give financial advice on making a contribution etc

    The catch up can be easily missed. Normally an individual has a $25K cap each year. In the 2019 year if their employer contribution were $18500 then their catch up cap in 2020 could be $25k + ($25,000-$18500) = $32,000 but then deduct expected employer contrubutions incl notional contributions if you are in a DB fund. There are stil some timing issues with the 2020 year to consider. Must be done before 30 June. Given market falls there could even be agrowth benefit from doing this now. If funds experience strong recovery the earning potetial in th next 1-2 years coul see a lump sum expeerience a great return and only be taxed at 15% - Compounding etc The catch up is subject to having a TSB (total super balances) under $500,000 at 30/6/19. Can be checked by a tax agent. If you are in a BD govt fund discuss this with the fund as some schemes have very generous benefits to encourage more contributions.

    If you are younger and dont want preservation isssues you could also consider debt reduction for .
    1. Credit cards etc (and then chop them up)
    2. Car or other finance
    3. Personal non-ded debt eg home or a offset
    4. Deductible debt eg IP or a offset
    Possibly in that order