base_sydney

Hi all

Does anybody know what are the tax implications of redundancy pay?

I came to sydney in apr 2005 and got a break in one of the US multinationals but as luck would have it, within 4 months of joining, the top bosses in US decided to shift these jobs to India. At least, 100 people would be getting redundant. Now, we have been told that we will be paid a month for each year of completed service plus 2 months. Can anybody tell me what are the tax threshold for redundancy pay and how much tax will I have to pay for anything above this threshold?

Also, if somebody has been working with the company for less than 1 year, what would be the implication?

Thanks
Amit

chrisvan

Hi Amit

Just read yr post, I'm no expert on redundancy matters but if I read correctly u have worked for the company for 4 months then I'm afraid u wouldn't be entitled to any redundancy payment. As yr post stated you would be entitled for a month for each year worked but unfortunately as you didn't work one year then it up to the company, they may make a goodwill payment but I wouldn't hold yr breath.

As I said I'm no expert so maybe someone else could enlighten you, good luck,

Chris

Wendy

'm not an expert on redundancy but I know that in UK employment laws employee's do not have may rights until they have worked for a company for two years. I do not know if the same applies in other countries or not though.

I agree with the last post though that it seems unlikely you would receive any redunancy money.

So far as I remember they would have to give you notice and if they did not want you to physically work it then they would still have to pay you for it, but again that is UK employment law.

Hope it works out for you though.

Wendy

base_sydney

Sorry my posting left some gap, I think. It's already 7 months I'm with this company now. The management has said we'll all have our jobs till 31 July next year. (It's like 11 months notice period!!) The guys from India will land in our office mid-december and we'll have to train them for next 6 months. Also, the year end is 31 May.....US would like us to do the year end accounting and tackle the auditors after the year-end.

So, to sum it up, US bosses are desperate to keep us till 31 July and the rule they have made is if anybody is with the company for less than 1 year, they will still get 1 month's pay. (That would be the case for one of my colleagues who joined the company in Aug 05.) To sweeten it up a bit, they have just announced, that on top of 1 month's pay, people would get 2 extra month's pay if they stick till the last date (i.e. 31 Jul 06)

Now, question for us is to weigh this pay against finding a new job right now. Management has made it little tougher for us now after announcing that extra 2 month's dough. And on top, somebody said there are tax benefits for redundancy pay which pushes up the opportunity cost even further!!

However, if somebody can guide us how the government calculates tax on redundancy pay, that will be really nice....otherwise, I m thinking of calling up ATO to ask how much share of the booty they want for themselves.

Thanks
Amit

Wendy

Hi again,

In the UK you do not pay tax on reduncancy pay up to £30,000. You do however pay it on the month's notice pay. Don't know about anywhere else, but would imagine it'll be more or less the same

Hope this helps

jonjon

had a very quick search round and found this it may be of some use to you ae it cover redundancy entitlements and qualifying periods

if you need any more info let me know and i will do a proper search for you.

regards

jon

jonjon

sorry that was the taz fact sheet not sure if the entitlements are that same as they are both covered by the fedral systems. may or may not be of use.

The web link on the bottom of the file will give you more inforamtion and help.

regards

jon

NIGENABBY

HI

Firstly I would ignore anyone that talks to you about what the law is in the UK. Without trying to be too lbunt it is totally irrelevant. Australian income tax law it totally and absolulty different.

The Australian redundancy pay (tax free portion) is based on years of completed service. IF you have worked 23 months at redundancy, that only counts as one year (for tax purposes). To get a tax break the money paid must be a "bona fide redundancy payment". It sounds like this is easily qualified in your circumstances.

Next what fits into your ETP (Eligible termination payment)

The tax-free limit for the 2004–05 year is a flat dollar amount of $6,194 plus $3,097 for each completed year of service (completed years of service include periods of annual leave and long service leave taken). If the payment is more than the tax-free limit, the amount over the limit is an eligible termination payment (ETP). Special tax benefits also apply to the ETP part of the payment.

Have a look through the ato site try http://www.ato.gov.au/super/content....tent/22611.htm this is from the employees view point.

Also look at http://www.ato.gov.au/superprofessio...tent/19824.htm yes this is from the employers view point, but as you will end up with the money the relevance is still there. It will also help assess if your payment has been calculated properly. You will be astounded how many get it wrong (even in big organisations) and people end up with massive tax bills at the end of the year.

Hope this helps.
Abby

jonjon

hi abby

do you have any other links to guides on aus employment law ??

want to gen up

regards

jon

base_sydney

Thanks all for your replies. I am still confused about 2 things:

1. If anyone has worked less than 1 year, will the tax-free limit for him be $ 6194 or ($6194 + $3097)? (As per the wording of ATO, it looks it will be just $6194 but there may be some special provision for people who have worked for less than 1 year)

2. How do you calculate tax on Eligible termination payment for the portion above the tax limit.

Thanks again
amit