redundancy example
1. Genuine redundancy payment
The sum of $130,000 payed by Orica Ltd is a genuine redundancy payment under s83-175 and s83-180. A redundancy payment is defined under s83-175 and s83-180 when a payment is made by a company to an employee doe to their position being made genuinely redundant. The following conditions also need to be met:
The employee must be dismissed under the age of 65; and
The payment must represent what would be payable under a normal commercial agreement; and
There must be no arrangement at the time of dismissal that the employee be re-employed by the employer.
As the taxpayer satisfies these requirements, the $130,000 is a genuine redundancy payment and is classified as non-assessable non-exempt income to the extent that is does not exceed the amount worked out in the following formula.
Base amount + (Service amount * Years of service)
Base amount (for 2013/14) = $9,246
Service amount (for 2013/14) = $4,624
9,246 + (4,624 * 10) = $55,486
Therefore $55,486 is tax free and the remaining $74,514 would be taxable as an ETP. The amount that Jack would have received as an Employment Termination Payment (ETP) is not included in the tax free component of the redundancy payment and is combined with any excess over the threshold amount. In this case with the $130,000 being well above the threshold amount, the figure need not be calculated.
2. Taxable component (ETP)
Because Jack is aged under 55 at the time of payment, the first $175,000 will be taxed at 30% plus Medicare levy (s82-10(4)). This would be classified as a Life Benefit Termination Payment defined in s82-130. There is no pre-July 83 component, nor any invalidity payment. Therefor the tax payable is:
30% under 55 - 74,514 * 30% = $22, 354
Medicare levy - 74,514 * 1.5% = $1,118
Total tax payable on excess - 22,354 + 1,118 = $23,472
3. Annual leave payout
The sum of $130,000 payed by Orica Ltd is a genuine redundancy payment under s83-175 and s83-180. A redundancy payment is defined under s83-175 and s83-180 when a payment is made by a company to an employee doe to their position being made genuinely redundant. The following conditions also need to be met:
The employee must be dismissed under the age of 65; and
The payment must represent what would be payable under a normal commercial agreement; and
There must be no arrangement at the time of dismissal that the employee be re-employed by the employer.
As the taxpayer satisfies these requirements, the $130,000 is a genuine redundancy payment and is classified as non-assessable non-exempt income to the extent that is does not exceed the amount worked out in the following formula.
Base amount + (Service amount * Years of service)
Base amount (for 2013/14) = $9,246
Service amount (for 2013/14) = $4,624
9,246 + (4,624 * 10) = $55,486
Therefore $55,486 is tax free and the remaining $74,514 would be taxable as an ETP. The amount that Jack would have received as an Employment Termination Payment (ETP) is not included in the tax free component of the redundancy payment and is combined with any excess over the threshold amount. In this case with the $130,000 being well above the threshold amount, the figure need not be calculated.
2. Taxable component (ETP)
Because Jack is aged under 55 at the time of payment, the first $175,000 will be taxed at 30% plus Medicare levy (s82-10(4)). This would be classified as a Life Benefit Termination Payment defined in s82-130. There is no pre-July 83 component, nor any invalidity payment. Therefor the tax payable is:
30% under 55 - 74,514 * 30% = $22, 354
Medicare levy - 74,514 * 1.5% = $1,118
Total tax payable on excess - 22,354 + 1,118 = $23,472
3. Annual leave payout