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Redundancy - Tax concessions on payments |
On being shown the door, an unwanted employee is likely to be paid accrued salary, entitlements to unused holiday pay and long service leave, and possibly a redundancy payment. |
Accrued salary is assessed in the normal way and accrued annual leave paid in respect of service on or after 18 August 1993 is fully assessable. |
A redundancy payment has to be for a genuine reduction in a company's staffing for part of it to be tax-free. This tax-free amount is indexed annually, and the amount for the year ended 30 June 2009 is $7,350 plus $3,676 for each whole year in the period, or the sum of periods, of employment to which the payment relates. |
There will also only be genuine redundancy if the employee is dismissed. An employee is dismissed notwithstanding their electing to accept redundancy - for example, where an employer makes redundancy offers to groups of employees generally. |
A scheme is an early retirement scheme if it provides for the termination of the services of a class of persons - for example, where an employer wants to replace employees who have particular skills with those of different skills. |
As with amounts paid on a genuine redundancy, part of the amount paid to retiring employees will be tax-free. |
A more adventuresome way of reducing tax is for the employer, instead of making a payment to the employee, to make an additional contribution to a superannuation fund for the benefit of the employee (a form of salary sacrifice). |
Employers can gain tax deductions for lump-sum amounts paid as accrued salary and leave entitlements, and for amounts paid for redundancy. |
