Are you thinking about starting the new year with a new job? It’s coming to that time of the year where many Australians may be thinking about refreshing their careers with a change of pace, but that could leave them with taxable consequences for their unused annual leave.
For example, some tax traps might impact you if you currently hold a job and plan to leave it for a new opportunity.
When your job ends, whether there has been a termination of employment or redundancy, you will receive a payment for unused leave. The tax on your termination payment will be different from your normal income.
This taxation will vary depending on why you left the job and any unused entitlements that have built up over your employment (such as long service leave or sick leave).
Tax on Unused Annual Leave
The tax that you must pay depends on both:
- the reason for leaving the job
- any unused entitlements you may have accrued, such as long service leave or sick leave.
The tax rate for lump-sum payments that you receive for unused annual or long service leave is lower than other income. These lump-sum payments will appear on your income statement or payment summary as either ‘lump sum A’ or ‘lump sum B’.
These payments may also be taxed differently if you lost your job as a result of COVID-19 or were temporarily stood down.
If you are starting a new job, you should also think carefully about the tax-free threshold, as you can claim that in the newest position. Claiming the tax-free threshold will reduce the amount of tax withholding from your pay for your new job. However, claiming the tax-free threshold a second time could result in a tax bill at the end of the year, depending on your situation.
Concerned about the potential tax consequences of the role and want some guidance about how a new job might impact your income tax return for 2021-22? Speak with us for guidance and a path forward when it comes to your tax.
