termination tax rate

[lizzie]

hi folks - i am being lazy and cannot be bothered spending 1/2 and hour in the ato phone line, so i thought i'd pop this question out for the tax experts.

what is the tax rate on a termination (redundancy) payment if you are currently on 42% with 25 years service? i have heard that the tax rate is lower on redudancy, so would be interested as is an option for us in the next six months.

[geoffw]

Eligible termination payments—an employees guide to lump sum payments from your employer (http://www.ato.gov.au/content/downloads/N2700-04-2006.pdf)

[lizzie]

thanks geoff - i search and search the website, but was obviously putting in the wrong key words (redundancy instead of eligable termination payment).

[geoffw]

lizzie

I never use the ATO search anyway, it never seems to find me what I want.

(And you wouldn't find on "eligable" unless you spelt it "eligible" ;) ).

I usually use Google:

"Site:www.ato.gov.au keywords"

[coastymike]

It is generally extremely difficult for directors of companies of related entities i.e. sole director companies to make eligible termination payments. This is confirmed in ATO ID 2001/529 which states "Paragraph 35 of Taxation Ruling TR 94/12 states that 'dismissal' carries with it the concept of the involuntary (on the employee's part) termination of employment.

The taxpayer (a «director» «and» shareholder of the company) made the decision to end the company's existence. This decision led to the termination of the taxpayer's employment. The termination of the employment of the «director is not an involuntary act on the part of the employee. Consequently, the termination of employment of the taxpayer does not constitute a bona fide redundancy within the meaning of paragraph 27F(1)(a) of the ITAA 1936.

Where you are a director and employee it is usually very difficult to prove that you were dismissed and the act was involuntary.

[lizzie]

thanks coasty - it's not for me but for hubby who is in outside paid employment. he's trying to work out whether it's better to take redundancy or 2 years unpaid leave.

after 30 years with the company, a large annual income, the tax rates for redundancy, 8 months long service leave and who knows what the future holds he'll probably go with the payout.