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Redundancy – where to from here?. << Presenter name >> << Presenter job title >> << Business details >> << Business details >>. << Presentation date >>. << Insert licensee logo >>. Important notice. << Insert company disclaimer >>. [Company name] – our credentials. Experienced
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Redundancy – where to from here? << Presenter name >> << Presenter job title >> << Business details >> << Business details >> << Presentation date >> << Insert licensee logo >>
Important notice << Insert company disclaimer >>
[Company name] – our credentials • Experienced • Over xx years experience • Over xxxx clients • Over $xx funds under advice • Professional personal advice • Advice underpinned by quality research and technical teams • Over xx offices nationwide • Backed by a global company
Making the right decisions • It’s important to seek professional financial advice during times of change • Sound financial advice may help you • Minimise tax paid on termination payments • Choose the right superannuation fund • Maximise retirement savings • Maximise social security entitlements • Qualify for cheap pharmaceuticals • Maintain essential insurance coverage • Effectively manage existing debts
Tailored advice is important • You have your own set of needs and objectives • Each redundancy package is unique and requires a tailored approach • Types of redundancy payments and amounts received depend on • Time served with your employer • Your income • Terms and conditions in your award (if applicable), workplace agreement (if applicable) and other relevant laws
Tax concessions on genuine redundancies • Not all redundancies are classed as genuine redundancies • Genuine redundancies qualify for special taxation treatment on unused annual leave and long service leave payments • Genuine redundancies also qualify for some of your payment, called genuine redundancy payment, to be tax free
What is a genuine redundancy? Generally, a genuine redundancy occurs where: • Job role is no longer required or is relocated to a distant location • Employee is under age 65 • No arrangement with employer to re-employ • Payments are made on a arm’s length basis
Was termination due to a genuine redundancy? Yes No Lump sum tax - usually at lesser of marginal tax rates or 30% (plus Medicare levy) Lump sum tax - usually at marginal tax rates (plus Medicare levy) Annual and long service leave payments • May be able to salary sacrifice to superannuation prior to employment termination • Must be received as cash payment if paid at termination of employment
Unused RDOs, sick leave, in lieu of notice, severance, ex-gratia, bonuses, compensation Amounts only payable because of genuine redundancy? Yes No Genuine redundancy payment Tax free portion Remaining portion (if any) Employment termination payment (ETP) • Must be received as a cash payment • Tax free Other payment types
$90,000 Genuine redundancy payment $57,918 ETP portion $33,082 Non-taxable portion ($7,350 + $3,676 x 7) Tax-free amount on genuine redundancy • Tax-free amount of genuine redundancy payment made in 2008/09 is capped at • $7,350 + $3,676 per completed year service • Example: 7.2 years of service
ETPs • Includes a tax-free component • If you began work with your employer before 1 July 1983 • If you left work because of invalidity • Includes a taxable component, with tax payable depending on • Your age • If special transitional rules apply to your ETP (transitional termination payments)
ETP paid under normal rules • Tax free component is tax free • Maximum lump sum tax rates on the taxable component paid in 2008/09
ETP paid under transitional rules • Transitional termination payments (TTPs) • Tax free component is tax free • Maximum lump sum tax rates on taxable component paid (cash payment) in 2008/09 * Limits may be reduced if previous TTPs have been received.
TTP directed into a complying super fund • Avoids lump sum taxes • The super fund will tax the payment as follows: * Limits may be reduced if previous TTPs have been received, amounts in excess may trigger extra penalty taxes
Case study - rolling over a TTP into super Lee (51) receives a TTP of $120,000 upon leaving his employer. Lee joined the company in 1990. Lee’s adviser suggests he roll the $120,000 to super. Lee pays less tax up-front by rolling his TTP into super and has $19,800 more to invest! These benefits cannot be accessed until Lee is at least 55 and satisfies a release condition. Assumption: Lee’s personal marginal tax rate is at least 30%.
Impact of cashing some termination payments • Assessable portion of cashed payments may impact your entitlements to certain concessions • Government superannuation co-contribution • Family tax benefits (FTBs) • Commonwealth seniors health card (CSHC) • Most tax offsets • It may also lead to a 1% Medicare levy surcharge liability in some cases • Strategies may apply to minimise this impact!
Making the hard decisions • Available choices depend on your personal circumstances • Age • Payment types and amounts • Providing for dependants • Future work prospects • Family’s financial position • I can help you make the right decision
Your choices • Your payments can be used for a variety of purposes • Ongoing living expenses • Home improvements and other one-off purchases • Family holiday • Repay personal loans and credit cards • Repay non-deductible debts • Repay deductible debts • Save for your family’s future
Saving via a superannuation vehicle • Superannuation is not an investment but an investment holding vehicle • Cash / fixed interest • Property • Shares • Other • Amounts you contribute are subject to caps and may not be immediately accessible.
Saving via a superannuation vehicle • Tax concessions • 15% maximum tax rate on earnings • No fund tax if in pension mode • No tax on withdrawals from age 60 (most funds) • Social security concessions • Exempt from income and assets testing if under pension age and not in pension mode • Income test concessions if in pension mode
Case study - investing in a low tax environment Maria (45) receives $220,000 in termination payments after lump sum tax has been paid. Maria plans to retire at 60 and her adviser suggests she use $100,000 of this to make an after-tax contribution to super. Maria has $23,000 more at retirement because she invested part of her payment into super. Her super is preserved. Assumptions: Maria’s marginal tax rate is 31.5%, assumed gross returns are 5% pa growth and 3% pa income (1/3rd franked), all earnings are reinvested and accumulated savings are cashed at age 60. Tax rate within Maria’s superannuation fund is 15%. Returns are not guaranteed and are for illustrative purposes only.
Your existing superannuation benefits • You generally only have access to existing unrestricted non-preserved amounts only • Access to other amounts is denied until you • Are retired and have reached your preservation age (age 55 if born before 1 July 1960) • Reach age 65 • Meet a qualifying release condition
Your existing superannuation benefits • Depending on your superannuation fund’s rules, you may need to transfer your superannuation savings to a new fund • Before transferring your superannuation savings, make sure • Your employer has paid all outstanding superannuation contributions • You exercise continuation options or arrange replacement cover on insurance policies!
Meeting your personal insurance needs • Will your personal insurance policies pay benefits while you’re not employed? • Make sure your family is protected if something was to happen to you • Cash flow friendly superannuation ownership option may apply to you • Remember, if you hold cover in an existing superannuation fund, exercise continuation options or arrange replacement cover before transferring your benefits out.
Centrelink www.centrelink.gov.au Appointments Ph: 13 10 21 Disability & Carers Ph: 13 27 17 Employment services Ph: 13 28 50 Family Assistance Office Ph: 13 61 50 DVA Ph: 13 32 54
Centrelink support • Income support entitlements are generally based on your income and assets • Your termination payments may lead to a waiting period before you can claim • You may qualify for certain strategies to reduce or avoid these waiting periods • There are many types of income support payments and concession cards (cheap pharmaceuticals) available through Centrelink
Common Centrelink income support benefits • Newstart Allowance • Age Pension • Disability Support Pension • Parenting Payment • Carer Payment
Case study - Centrelink payments sooner Rachel (51) receives $35,000 in termination payments (35 weeks worth of pay), of which $20,000 can be directed to super. Rachel wishes to claim Newstart Allowance. Rachel’s adviser recommends she directs the $20,000 to her super fund. By directing the $20,000 into her super fund, Rachel qualifies for Newstart Allowance 20 weeks sooner. These benefits cannot be accessed until age 55 and a release condition has been satisfied.
GEERS • Applies where employer becomes bankrupt or liquidator appointed • General Employee Entitlements & Redundancy Scheme (GEERS) can pay your lost entitlements up to • 3 months unpaid wages (includes sacrificed salary) • Unpaid annual leave and long service leave • 5 weeks unpaid payment in lieu of notice • 16 weeks unpaid redundancy entitlement www.workplace.gov.au/geers
Other useful contacts • If your employer is late paying your superannuation guarantee payments • Australian Taxation Office (ATO) • Ph: 13 10 20 • To find out more about your employment rights • Workplace Infoline • Ph: 1300 363 264 • Workplace Ombudsman Help Line • Ph: 1300 724 200
How can I help? • Preparation of a tailored financial plan to help you through your redundancy • Effective strategies to limit lump sum taxes payable and maximise social security entitlements • Superannuation advice • Risk management advice • Investment advice • Budget planning advice • Debt management advice • Estate planning
Like some financial advice? Please call me if you’d like to find out more about how I can help you take advantage of your financial options. << insert adviser name >> << insert adviser job title >> • Ph: ( ) • Mob: ( ) • Email: • << insert adviser work address >> << insert adviser work address >> << insert adviser work address >> << Insert business logo and licensee details here>>