Redundancy – where to from here? >

Important notice >

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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

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 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)

Other payment types Unused RDOs, sick leave, in lieu of notice, severance, ex-gratia, bonuses, compensation Amounts only payable because of genuine redundancy? Genuine redundancy payment Yes No Employment termination payment (ETP) Tax free portion Remaining portion (if any) Must be received as a cash payment Tax free

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 $90,000 Genuine redundancy payment $33,082 Non-taxable portion ($7,350 + $3,676 x 7) $57,918 ETP portion

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 Taxable component Under age 55 on 30 June 2009 Age 55 or over on 30 June 2009 First $145, %16.5% Thereafter 46.5%

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 Taxable component Under age 55 on 30 June 2009 Age 55 or over on 30 June 2009 First $145, % 16.5% $145,000 up to $1 million* 31.5% Thereafter 46.5% * 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: Component Fund contributions tax Tax free 0% Taxable up to $1 million* 15% * 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 Lee’s adviser suggests he roll the $120,000 to super. If taken as cash If rolled to super Gross amount$120,000 Tax$37,800$18,000 Net amount$82,200$102,000 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. If $100,000 invested outside super If $100,000 invested inside super Balance at age 60$269,367$292,367 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 (1/3 rd 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 Appointments Ph: Disability & CarersPh: Employment services Ph: Family Assistance Office Ph: DVAPh:

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. If TTP taken as cash If TTP rolled to super Waiting period35 weeks15 weeks 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

Other useful contacts If your employer is late paying your superannuation guarantee payments  Australian Taxation Office (ATO)  Ph: To find out more about your employment rights  Workplace Infoline  Ph:  Workplace Ombudsman Help Line  Ph:

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? >  Ph: ( )  Mob: ( )   > > Please call me if you’d like to find out more about how I can help you take advantage of your financial options.