Shila is 58 years of age and has devoted the past 13 years to an engineering firm, where she earns a commendable salary. She aspires to keep working for a few more years to reach her full potential, as she certainly adds value to her current role.
Recently, her employer, No-mans-project, has begun implementing AI-driven process optimisations, resulting in some unavoidable redundancies, including Shila’s position being under review for potential redundancy.
Now, Shila is at a pivotal point in her career. She is weighing her options: retiring, seeking a new employer to continue working for a few more years, or accepting a different role within her current organisation that pays less. With her superannuation preservation age set at 60, the decision is becoming increasingly urgent.
Let’s examine Shila’s choices, along with an analysis of their benefits and drawbacks.
Shila Considers the Redundancy
First, let’s assess Shila’s assessable income for the financial year, taking into account the redundancy payments.
| Component | Benefit Amount | Tax Implications |
| Shila’s salary before tax at the year’s end. | $220,000 | Taxed at her marginal tax rate. |
| Genuine bona fide redundancy payment from No-mans-project. | $90,956 | The first $93,956 is tax-free for genuine bona fide redundancy. Therefore, Shila will not be taxed on the entire $90,956. |
| Long Service Leave (post-1993) | $38,000 | Taxed at the marginal tax rate. |
| Annual leave (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 assessable income due to her tax-free redundancy payments. |
Shila’s Assessable Income if She Accepts the Redundancy
If Shila decides to accept the redundancy, her assessable income for the financial year would include:
- Wage: $220,000
- Long Service Leave Payout: $38,000
- Annual Leave Benefit: $30,000
- Investment Income: $18,000
Total Assessable Income: $306,000
Shila’s Options for After-Tax Money
Assuming Shila incurs some tax this year on her assessable income of $306,000, she will need to plan her next steps using the total of $396,956 minus her tax obligations. It is essential to keep in mind that Shila has not yet attained her superannuation preservation age of 60.
Superannuation Contribution
Shila might contemplate contributing a substantial portion of her redundancy benefits to her superannuation fund as a non-concessional contribution. By leveraging the non-concessional contribution bring-forward limits, she could potentially contribute up to two or three times the annual cap amount in the first year of this period.
For the 2024-25 financial year, the non-concessional contribution cap stands at $120,000. This means Shila can contribute up to $360,000 this year, provided she hasn’t previously utilised the bring-forward cap.
Furthermore, Shila should check her Total Superannuation Balance (TSB) cap of $1.9 million from 2023/24 to determine how much in non-concessional contributions she can make without breaching the cap. As she is only 58, she does not need to satisfy the work test to make these contributions.
This option is noteworthy if she does not require immediate access to funds for other purposes. It’s crucial to remember that at just two years shy of 60, she can access her superannuation benefits without incurring withdrawal tax if she remains retired.
Other Choices
Shila could also consider alternative options, such as investing outside of superannuation, paying off a mortgage or debts, or planning a return to part-time or full-time work soon.
What Will Shila Do?
Shila’s children are now independent, and her mortgage is nearly settled. She has been contemplating options like consulting or taking on flexible project work.
“I’m not rushing back into a 9-5. I might take six months off, perhaps do a few contracts or take up a board position.”
This decision provides her the space to reassess her life, take the time to upskill, pivot, or semi-retire while keeping her superannuation balance stable. Shila intends to take on a part-time role starting July 1 next year, to ensure her redundancy payout doesn’t elevate her into a higher tax bracket this year as she incorporates her part-time earnings.
For more information on superannuation options, visit this link.