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Long service - cash it in?

Discussion in 'Property Finance' started by ripas, 22nd Jul, 2015.

  1. ripas

    ripas Member

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    My employer allows a provision for cashing out long service leave. For me its a substantial amount (circa $60k). I'm aware this will be taxed at the highest rate giving me $38k.

    Should i take advantage of this payout and use it on a deposit for an IP? The only other conundrum is it may affect my child support payments however im pretty sure my tax return will be lodged after she turns 18.

    Of course i'm willing to accept the fact that i will have to rebuild my leave balances.
     
  2. wylie

    wylie Moderator Staff Member

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    Have you seen a loan broker? I would look at all avenues before touching your super and losing $22K in order to get hold of $60K for a deposit. (Can you even get your super?)

    You could look at possibility of a family loan, personal loan for a deposit (I believe this is possible or used to be).

    I also think for help here you need to provide lots more information. -

    1. How old are you?
    2. What do you earn?
    3. Dependants other than your nearly 18 year old?
    4. What would you buy and what price?
    5. If you buy and rent it out could you borrow more as you are getting an income (rent) and live cheaply elsewhere until you can afford to move in?

    First call would be to a loan broker.
     
  3. Hodor

    Hodor Well-Known Member

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    Depends on your circumstances. I like leave, travel and holidays, so I wouldn't in my situation.

    Having said that if I didn't have a start in property I would probably feel differently.

    It is a good idea to check with a broker that you can then get a loan so you don't cash out for nothing.
     
  4. tobe

    tobe Well-Known Member

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    There inst enough info to give an opinion really. If you had borrowable equity, why not use that rather than money you have paid tax on as a deposit?
    If this is your first house, and you have no other source for the deposit I guess Id consider perhaps using half towards an investment of some kind. With the other half Id either go on holiday or keep it up my sleeve.
    Long service leave takes a long time to accumulate, its precious I reckon.
     
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  5. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    You can always earn more money, but you can't buy more time - I'd take the leave unless you have a very compelling reason not too.
     
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  6. legallyblonde

    legallyblonde Well-Known Member

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    If you cash out your leave entitlements it is my understanding that you will not get paid super on this amount, but you would if you took the leave. Please correct me if I am wrong, I have never had a job that has leave! ;)
     
  7. Chilliblue

    Chilliblue Well-Known Member

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    Personally I would continue to bank the leave as it can be used as part of your buffer strategy
     
  8. EN710

    EN710 Well-Known Member

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    I'd take the leave than the money but everyone's situation is different.
    Would the $38K net worth it in exhange of working all day off that you could use to recharge?

    Or can you cash it out, then move job with time off in between :rolleyes:
     
  9. Pistonbroke

    Pistonbroke Well-Known Member

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    At present it is at risk if the employer goes into liquidation you will lose all of it so it is worth $0. If you take it, you can accrue more.

    Is there a requirement that you will need to take 10+ weeks leave? Do you have to take the lot?

    If you lose the child support payment how much is that?
     
  10. ripas

    ripas Member

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    Its a cash out of long service leave, not super.

    I only have limited equity in my current PPOR. This equity, plus the cash out if I go that way,gives me enough for a reasonable deposit

    I have good salary continuance insurance in place
     
  11. tobe

    tobe Well-Known Member

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    Keep plugging away at the mortgage on your ppor I reckon until you do have the equity for deposit

    If you have to cash out the long service leave, pay it into your mortgage and do a new loan (for s similar amount) for the deposit which becomes tax deductible if you use it to purchase an investment.
     
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  12. Corey Batt

    Corey Batt Finance Strategist Business Plus Member

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    If you go down this path, cycle the cash payment into your PPOR, then draw out as a new investment loan split.

    Increased deductibility, ability to purchase an IP, reduced PPOR mortgage - sounds pretty simple to me. ;)
     
  13. TwoDogs

    TwoDogs Well-Known Member

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    I'd avoid unless you really need or the company's future is doubtful. Beside a huge amount lost to tax, consider accrued leave as a great savings plan that is not taxed along the way. If you get regular pay increases (I have heard some people actually do :( ) then the value of your unpaid leave increases each year. If you must cash it in, at least plan ahead to minimise your taxable income in that year.
     
  14. ripas

    ripas Member

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    Seems everyone is in the "dont do it" camp. Thankyou all for the advice it is well heeded.
     
  15. D.T.

    D.T. Adelaide Property Manager Business Member

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    Take a well earned break from work, but perhaps cash out some and do as this guy says. Stick it into your mortgage to reduce your non deductible debt. This will make your life easier and make your serviceability go up.
     
  16. Beelzebub

    Beelzebub Well-Known Member

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    I will descent and go with take the money. That is if your leave entitlements are similar to mine: I receive three months every seven years.

    If you don't feel you need the holiday or that you would be bored out of your mind sitting around for three months take the money.

    As for pay increases and tax: The opportunity cost of not taking the money and leaving it so that you can take more at some later date with a higher wage or save significantly on tax might be quite high if you compare it with the profits you would make from leveraging that money to buy property.

    Also, you take the leave and it starts accruing again.

    Leaving the cash as a buffer for a rainy day does have merit though; but I will cash out when I am entitled to leave.
     
  17. Kirsti327

    Kirsti327 Active Member

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    That is an amazing amount of LSL! I'm coming up to my 10 year anniversary and getting really excited about my $18k coming available... nothing compared to you!
    Do you have the ability to cash out part of it only? That way you could manage the tax rate you pay on it if you are not already in the highest bracket without it
     
  18. wylie

    wylie Moderator Staff Member

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    Just realised I read it as "super" and not "long service leave" and didn't see the post after mine which pointed this out (sorry). I still would keep it up my sleeve as a security blanket if you can manage to do this another way.
     
  19. Till Kingdom Come

    Till Kingdom Come Well-Known Member

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    When you take the leave you get paid anyway. i.e. through normal payroll.
     
  20. wylie

    wylie Moderator Staff Member

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    But if you leave it until you resign, you can take it in the early part of a new financial year, and if you cash it out, you just add three months leave to your already full twelve months of pay, don't you?