On 15.12.18, the Treasurer announced a change to the ‘genuine redundancy payments’ rules, and ‘early retirement scheme’ payments, so that these concessions apply until the start of the Age Pension, eligibility age.
- Genuine redundancy payments are made when a job is abolished and early retirement scheme payments are made when a person retires early, or resign, as part of a scheme put in place by an employer.
- Genuine redundancy and early retirement scheme payments have a tax-free component, based on the person’s length of service with their employer. However, currently, an individual can only receive this tax-free component if they are aged below 65 years of age at the time of termination of employment, meaning people aged over 65 years of age pay substantially more tax on these payments.
Genuine redundancy and early retirement scheme payments will be aligned with the Age Pension qualifying age from 1 July 2019. The Age Pension qualifying age will be 66 on 1 July 2019, rising to 67 by 1 July 2023.
- This change means that all individuals aged below the Age Pension qualifying age will be able to receive a tax-free component on the payment they receive from their employer in these circumstances.
- For example, a 65 year old with 10 years of service whose job is abolished receives a $100,000 redundancy payment. Currently, as they are aged over 65 years, they would not receive a tax-free component and would pay $15,000 tax. Under our reform, the individual would pay just $5,640 in tax, saving $9,360.