GENUINE REDUNDANCY PAYMENTS: ALIGNMENT WITH AGE PENSION AGE
The Federal Government has announced that it will amend the law to extend the concessional tax treatment for genuine redundancy payments and early retirement scheme payments to align with the Age Pension qualifying age.
Currently, an individual must be below age 65 at the time their employment is terminated to qualify for a tax-free component on a genuine redundancy payment or an early retirement scheme payment. Genuine redundancy payments are made when a job is abolished, and early retirement scheme payments are made when a person retires early, or resigns, as part of a scheme put in place by an employer. Where an individual is under age 65 and meets the other requirements in Subdiv 83-C of the Income Tax Assessment Act 1997, they receive tax-free a base amount of $10,399 (for 2018–2019), plus $5,200 for each whole year of service.
The government said it will amend the law to align genuine redundancy and early retirement scheme payments with the Age Pension qualifying age from 1 July 2019. The Age Pension age will be 66 on 1 July 2019, rising to 67 by 1 July 2023. The change will mean that all individuals aged below the Age Pension qualifying age will be able to receive a tax-free component on the payment they receive from their employer in these circumstances.
Take, for example, a 65-year old with 10 years of service whose job is abolished, and who receives a $100,000 redundancy payment. Currently, as they are aged over 65 years, they would not receive a tax-free component and would pay $15,000 tax. Under the proposed changes, the individual would pay $5,640 in tax, saving $9,360.
If you would like to know more please contact one of our accountants on 07 4639 1099 or come in and see us at 14 Russell Street Toowoomba.