From time to time employers offer redundancy payments for unscheduled termination of employment arrangements. Some issues to resolve in this situation, are –
- taxation consequences for each of the elements of the payout;
- superannuation options that may be available; and
- how your payout might impact any entitlement to Centrelink support.
Some redundancy payment types
(Voluntary Separation Packages (VSPs) will usually contain similar elements and will be subject to the same considerations.)
The redundancy payout can comprise the following elements:
Eligible Termination Payments (ETPs) being –
- unused rostered days off;
- amounts in lieu of notice; and/ or
- golden handshakes’;
Genuine Redundancy payments; and/ or
Payments for time worked (or ‘leave’ taken or accrued).
How they’re taxed
Different taxation imposts apply to the various elements. The taxation rules applying to redundancy payments at the tine of he original posting of this article have changed over time. You can review relevant, current information from this page linked from the ATO website. In general terms though –
- genuine redundancy up to the prescribed amount is free from tax; and
- special rates apply to unused annual/ long service leave.
From a financial/ wealth management viewpoint, the way you deal with the after-tax proceeds will need to be strategically determined according to your individual circumstances: some questions at issue include –
- Will you retire as a consequence of this termination?
- Will you require support from Centrelink in the near- or medium-term?
- Can you utilise superannuation to minimise the financial impact of your post-redundancy/ separation event?
Take advice
Some employers provide financial assistance for redundant employees to obtain relevant wealth management advice in these situations: whether you are in that position or not we strongly recommend that you seek professional advice to ensure that you take advantage of any available benefits/ opportunities before committing the proceeds in a way that might impair your maximum benefits.
Continuum Financial Planners have a team of experienced wealth management advisers available to help you through this process: we operate on a fee for service basis (and rebate any associated commissions back to you). To seek an appointment with one of our team, call our office (07 3421 3456) or use our online facility to Contact Us and arrange for the obligation-free, no cost to you, first meeting.
(This article was first posted by us in January 2012. It has occasionally been refreshed/ updated, most recently in January 2025.)
