Redundancy: the risks exposed
With many jobs hanging in the balance due to the current recession occurring in Australia CUA (Credit Union Australia) is urging those facing redundancy to get professional advice to ensure a stable financial future.
CUA Acting CEO Rob Nicholls said redundancy payouts were complicated and deciding how to receive such a payment had significant tax and social security implications.
“Unfortunately an economic downturn and eventual recession usually come hand in hand with unemployment, which explains the numerous redundancies we see occurring,” he said.
“And while those whose jobs are hanging in the balance know they will get a payout, if they are full or part-time employees, they do not often know that there are many options for how they will receive their payout and if they make a wrong decision they could negatively affect their financial stability and even put at risk their future standard of living.
“This is regardless of whether they have another job lined up or not.
“For a start, there are major tax implications in how to tell an employer you will take the different parts of a redundancy package.
“If you take the wrong component in cash you could easily end up paying much more tax than you need to, and some parts taken as cash are tax-free, but only up to a limit.
“For example, if you have been working in a company for fifteen years you could take $62,490 (as at the 2008-09 financial year) of your ‘bona fide redundancy’ payout in cash, tax-free.
“The balance will be paid out but must be included as assessable income in your tax return, unless you qualify under certain provisions to roll it over to your super, otherwise you can run into trouble with the ATO.”
Mr Nicholls said those relying on Centrelink benefits such as the Newstart Allowance while searching for a new job needed to be aware that the way they decided to receive their redundancy payout could affect their eligibility to obtain a benefit.
“If you have been made redundant you may find that any Centrelink benefit you apply for may be delayed or reduced if you are not aware of all the rules. For example a payment of unused leave can delay the start date to receive the Newstart Allowance.
“Money cashed out from your redundancy will also be assessed when calculating the liquid assets waiting period for Centrelink benefits. You may have to wait weeks or months before becoming eligible for any benefits.”
Mr Nicholls said it was a smart move for those who had been made redundant, or who felt they had a likely chance of being made redundant, to consult a qualified financial planner for advice.
“A professional financial planner can help you work out how to use your redundancy payout to your maximum advantage and to meet your present and future needs.
“Commitments such as personal or home loan repayments are of the biggest concern to those facing redundancy, but if you seek financial planning help you can be advised of the best way manage any repayments you may have, such as consolidating all your loans into one easy payment per month.
“To be sure your financial planner is qualified you should deal only with representatives of a dealer group registered with the Australian Securities and Investments Commission (ASIC).
To make an appointment for a complimentary initial consultation with a CUA financial planner phone 1300 655 014 / 133 cua (133 282) or visit www.cua.com.au.
