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Long Service Leave Pay out and Tax

Newbie

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Hi there,

 

I was considering having my long service leave paid out by I understand about a third will be paid in tax.

If I get paid out small amounts each pay will that reduce the overall tax paid or will it make no difference?

I earn 107000 gross.

 

Thanks in advance

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Most helpful response

ATO Community Support

Replies 1

Hi @Josh3185,

 

It depends on if you're continuing your employment or not.

 

If you're planning to continue your employment, normal withholding rates will apply. At the end of the day, it will reconcile correctly, just over different timeframes.

  • If you receive a lump sum, that means you'll be taxed as though you're receiving that large amount each pay cycle. This means you'll likely have more tax withheld than you really need to pay, but it will reconcile when you lodge your tax return.
  • If you receive them as smaller amount more regularly, you'll have less withheld, and it will more closely reflect your annual taxable income immediately, rather than once you lodge your return later on.

If you're planning on ending your employment, you will be taxed as per the rates for unused leave payments on termination of employment. This means the tax rate will depend on when you accrued the long service leave and the reason for leaving employment. Assuming your tax rate falls into marginal rates, it will be taxed as though it is spread across the entire year when you receive it, whether you receive it as a lump sum or in regular smaller payments.

 

You can read about withholding from leave payments for continuing employees and tax table for unused leave on termination of employment on our website.

2 REPLIES 2

Most helpful response

ATO Community Support

Replies 1

Hi @Josh3185,

 

It depends on if you're continuing your employment or not.

 

If you're planning to continue your employment, normal withholding rates will apply. At the end of the day, it will reconcile correctly, just over different timeframes.

  • If you receive a lump sum, that means you'll be taxed as though you're receiving that large amount each pay cycle. This means you'll likely have more tax withheld than you really need to pay, but it will reconcile when you lodge your tax return.
  • If you receive them as smaller amount more regularly, you'll have less withheld, and it will more closely reflect your annual taxable income immediately, rather than once you lodge your return later on.

If you're planning on ending your employment, you will be taxed as per the rates for unused leave payments on termination of employment. This means the tax rate will depend on when you accrued the long service leave and the reason for leaving employment. Assuming your tax rate falls into marginal rates, it will be taxed as though it is spread across the entire year when you receive it, whether you receive it as a lump sum or in regular smaller payments.

 

You can read about withholding from leave payments for continuing employees and tax table for unused leave on termination of employment on our website.

Newbie

Replies 0

Thanks for that. I am planning to cash some or all of it while still being employed. It looks like the tax will be the same at the end of the day, if I do it as a lump sum or in small amounts each fortnight. I was told I could cash in all of my LSL, which comes to 18,753. This would make the tax amount come to 6230 for the LSL alone. My gross pay is 107K.

 

Regards,

 

Josh