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Planning To Retire

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Retire1When you’re planning to retire you need to understand how any lump sum payments you receive from your employer might be taxed and, if you’re part of an Employee Share Scheme, consider whether the ‘good leaver’ conditions apply to you. Alternatively, if you’re selling your business, you’ll want to know whether or not the retirement capital gains tax concession applies to you.

Most importantly, of course, you’ll want to know how you can access your super.

 

Employment termination payments, redundancy and early retirement

If you received any lump sum payments from your employer for unused annual leave or unused long service leave, it may be taxed at a lower rate than your other income. If you have received one, it will appear at either ‘Lump sum A’ or ‘Lump sum B’ on the payment summary or statement you received. These details will be required for your tax return.

A bona fide redundancy payment is a payment made to you when you have been dismissed because the job you have been doing is made redundant. Payments under a bona fide redundancy are tax-free up to a limit based on the number of years you had worked for that employer.

Your employer may offer staff an approved early retirement scheme to encourage certain groups of employees to retire early or resign. You may pay less tax on payments you receive under an approved early retirement scheme.

 

Employee share schemes

If you are a member of an employee share scheme (ESS), you need to consider the ‘good leaver’ conditions. Good leaver conditions in an ESS may allow employees to retain ESS interests if they cease employment to retire from the workforce permanently during the forfeiture period. Whether ESS interests acquired under an ESS with good leaver conditions are at a real risk of forfeiture will depend on the facts and circumstances, including how the ESS is operated and the employee’s personal circumstances.

 

CGT retirement exemption for small business

 

If you are selling your business assets, the capital gains tax retirement concession may apply. The retirement concession can exempt a capital gain on a business asset, up to a lifetime retirement exemption limit of $500,000. This concession allows you to provide for your retirement.

For an individual choosing the retirement exemption, there is no requirement to terminate any activity or cease business.

If you are under 55 when you sell the asset, the proceeds must be invested into retirement assets.

 

Accessing your super

Super benefits may be paid to you as an income stream or lump sum. If you’re aged 60 or over and your only source of income is super benefits from a taxed source, you won’t need to lodge a tax return. However, you will have to lodge a tax return if you have income from other sources, including investments or some public service super funds.

Tax payable on super benefits depends on a number of things, including your age, the amount of the payment and whether your super comes from a taxed or untaxed source.

Some super benefits have a tax-free component and a taxable component. The tax-free component generally includes:

  • Amounts you have contributed to your super fund without claiming those amounts as a tax deduction, and
  • Certain other tax-free amounts you may have rolled into your super fund.

 

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Warren Kruger

Specialist Tax Consultant - “Helping YOU Pay The Correct Tax And Not A Penny More”. My story starts on Christmas Eve, back in 1983 in South Africa.

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