You can contribute these payments to your QSuper benefit as a non-concessional contribution, but the normal contribution caps will apply.
The amount of tax you’ll need to pay will vary based on when you accrued the leave, your age, and your income for the relevant financial year.
How it’s taxed will vary depending on your age at the time you receive the redundancy.
As well as the severance payment, you might also be offered a once-off incentive payment. There are conditions attached, so it’s a good idea to contact your HR representative to find out more.
For a benefit to be considered a genuine redundancy payment, it must meet the criteria set out in the Income Assessment Act 1997. Again, your HR representative will be able to help with further information.
Download the Redundancy factsheet
Any accrued leave payments are excluded from your genuine redundancy payments and ETPs and are taxed separately.
How the specific components of your payment are taxed will depend upon whether your position has been made genuinely redundant for taxation purposes. If you’re unsure about whether this fits your situation, get in touch with your HR representative.
If you’re under 65, a portion will be tax-free. For the 2015/2016 financial year, the tax-free portion is equal to $9,780 plus $4,891 for each whole year of service.
For example, if you have ten and a half years of service, your tax-free portion would be calculated as follows:
$9,780 + ($4,891 x 10) = $9,780 + $48,910
= $58,690 tax- free
Any amount over the tax-free portion will be considered taxable and would form part of your ETP. If you’re over 65 the entire payment forms an ETP.
As you would’ve been paid these benefits under normal resignation, they don’t form part of your ETP. These benefits are considered assessable income and they’re generally taxed at a maximum rate of 32% where you’re considered to have been made genuinely redundant.
However, if you’ve got any long service leave that relates to your employment before 16 August 1978, only 5% will be taxed at your marginal tax rate plus the Medicare levy.
If you’re over 65, any long service leave that relates to the period from 17 August 1993 to the present will be taxed at marginal tax rates.
An ETP will generally include any amount over the tax-free portion of your genuine redundancy payment, but it doesn’t include any accrued leave payments. If you have service prior to 1 July 1983, the portion of your ETP reflecting that prior service will also be tax-free. The remainder is assessable income and subject to tax at the following rates for the 2015/2016 year:
ETP taxation for a genuine redundancy1
1. Just remember that if the payment is not a genuine redundancy for income tax purposes (such as defined under Directive No. 04/12 July 2012) there may be different tax implications, so have a chat to a tax specialist.
2. Your preservation age is based on your date of birth as outlined in the Access your super table.
3. The low rate cap amount is indexed in line with AWOTE, in increments of $5,000 (rounded down). For 2015 /2016 the low cap rate is $195,000 for ETPs relating to genuine redundancy, early retirement schemes, invalidity and death. The new indexed amount is generally available each February. You should talk to a tax specialist to confirm whether the payment made is a genuine redundancy payment for tax purposes or not. If a payment isn’t considered to be a genuine redundancy payment there may be different tax implications and limits.
4. Includes Medicare levy of 2%, but excludes temporary budget repair level of 2%.
5. QInvest Limited (ABN 35 063 511 580, AFSL and Australian Credit Licence Number 238274) (QInvest) is ultimately owned by the QSuper Board (ABN 32 125 059 006) as trustee for the QSuper Fund (ABN 60 905 115 063), and is a separate legal entity responsible for the financial services and credit services it provides. Advice fees apply.
We can provide you with information to help you consider your options, or connect you with a QInvest5 financial adviser for more personal financial advice.