Sheila, aged 58, has recently experienced redundancy after 13 years with an engineering firm, where she earned a commendable salary. She aspires to stay in the workforce for a few more years to reach her full potential, as she feels she brings significant value to her role.
Her employer, No-Mans-Project, has been investigating AI-driven process optimisations for several years and is now set to implement them. However, this rollout will lead to some redundancies, and Sheila’s position is among those under consideration for redundancy proposals.
Sheila finds herself at a crossroads, weighing her options: retirement, pursuing employment with a new company for a few more years, or accepting a pay cut to take on a different role with her current employer. With her superannuation preservation age at 60, she is approaching that milestone.
Let’s examine some potential options for Sheila, including their advantages and disadvantages.
Sheila Accepts the Redundancy
Firstly, we will evaluate her total income at the end of the financial year, factoring in the redundancy benefits.
| Component | Benefit Amount | Tax Impacts |
| Sheila’s salary, before tax, at the end of the financial year | $220,000 | Her wage is taxed at her marginal tax rate. |
| Genuine bona fide redundancy payment from No-Mans-Project | $90,956 | The first $93,956 of the redundancy payment is tax-free, meaning Sheila pays no tax on this amount. |
| Long Service Leave (post-1993) | $38,000 | Subject to marginal tax rates. |
| Annual Leave (all post-2015) | $30,000 | Taxed at marginal rates. |
| Investment Income (Managed Fund Earnings) | $18,000 | Taxed at marginal rates. |
| Total Income | $396,956 | Not all of this amount is taxable income due to the tax-free nature of redundancy payments. |
Sheila’s Assessable Income if She Accepts the Redundancy
If Sheila chooses to accept the redundancy, her assessable income for the financial year, based on the information above, would appear as follows:
- Wage = $220,000
- Long Service Leave Payout = $38,000
- Annual Leave Benefit = $30,000
- Investment Income = $18,000
- Total Assessable Income = $306,000
Sheila’s Options for After-Tax Money
Assuming that Sheila pays a certain amount X in taxes on her assessable income of $306,000, she will have $396,956 – X available to plan her next moves. It’s important to note that she has not yet reached her superannuation preservation age, which is 60.
Superannuation Contribution
Sheila may want to make a significant non-concessional contribution to her superannuation account, utilising the bring-forward contribution limits. This approach allows her to contribute up to 1 to 2 years’ worth of annual caps from future years.
For the 2024-25 financial year, the non-concessional contribution cap is set at $120,000. Therefore, Sheila could contribute a maximum of $120,000 x 3 years = $360,000 this financial year, assuming she hasn’t previously utilised the bring-forward cap.
Sheila should also keep in mind her Total Superannuation Balance (TSB) cap, which is $1.9 million as of 2023/24, as this will determine her contribution limits before reaching the cap. Being 58, she is not obligated to meet the work test to make these contributions.
This option is feasible if she doesn’t need immediate access to cash for other expenses. Additionally, with only two years until she turns 60, she can access her superannuation benefits tax-free if she remains retired.
Other Choices
Sheila has other alternatives to consider, such as investing outside of superannuation, paying off her mortgage or other debts, and planning to return to part-time or full-time work either immediately or shortly.
What Will Sheila Decide?
With her children now grown and her mortgage nearly settled, Sheila has been contemplating part-time consulting or project work.
“I’m not rushing to return to a full-time job. I might take a six-month break, work on a few contracts, or possibly take on a board position,” she shares.
This strategy allows her the chance to pause and reassess her situation, providing the time to upskill, pivot, or consider semi-retirement, all while maintaining a healthy superannuation balance for her future.
Sheila intends to start a part-time job on July 1 next year, ensuring her redundancy payout does not elevate her to a higher tax bracket once her part-time earnings are factored in.
For further insights on managing your finances after redundancy, visit Connect Client.
