What happens with my super upon retrenchment?
What should I do next?
Redundancy payment, tax and your super
If you receive a “genuine” redundancy payment, which is typically based on your years of service with your employer, you are entitled to receive a portion of the payment tax free.
The tax free limit for the 2016/17 year is $9,936 plus $4,969 for each complete year of service.
For example, if you have 15 years of service, your tax free portion would be:
$9,936 + (15 x $4,969) = $84,471
On top of the tax free portion, there is a concessional tax treatment on employment termination payments (ETPs) up to a cap of $195,000.
The tax on this portion depends on whether you have reached your preservation age:
- If you are 56 (i.e., you have reached preservation age), the tax would be 15% (plus Medicare levy)
- If you are under 56, the tax would be 30% (plus Medicare levy)
The tax above the $195,000 cap is 47% (plus Medicare levy).
The redundancy payment can only be paid into super as a personal (after tax) contribution. Through the end of the 2016/17 financial year, the cap for after tax contributions is $180,000, or $540,000 when using the three-year bring forward rule. This limit may change in the 2017/18 financial year to $100,000 p.a., or $300,000 when using the three-year bring forward rule.
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