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Long Service Leave Payout on resignation

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Hi,

Two part question.

Basic info- Employed in the NT, have 13 weeks LSL banked up and have been offered a role with a similar company to that which I currently work.

Firstly, What rate would I be taxed on my Long Service leave when I leave my current employer? I have been told I will lose up to .60c in the dollar but that cant be right.

Secondly, I have also been advised that I could request to take my LSL at half pay over six months while I start a new role with a similar company- My research suggests that this is far from correct. Thoughts?

M

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Hi Matt_E, 

 

In terms of Tax Witheld from Unused Leave (Generally grouped under Employment Termination Payments or ETP on ATO information), the calculation is a little tricky - LSL for a standard termination is taxed using the marginal rates tax process described here.

 

In essence, the amount of the LSL payout is spread over 12 months and the difference between the tax that was witheld and the tax that would have been witheld if the LSL payout had been evenly split and included in each pay packet is the amount witheld from the payout. For most people, this results in MUCH less tax than 60% (47% is the amount witheld if you didn't provide them a TFN at all so I can't imagine why it would ever be 60%).

 For the specific amount, this page has the specific calculations which you'd have to go through

 

 

In terms of your second question, if you were at the new job and still receiving some payments from the old one, you likely wouldn't be able to claim the tax free threshold from both - this would result in a higher rate of tax being witheld from that income. In any case, I don't see why you'd want to bother with spreading it over six months - the total tax owing at the end of the year wouldn't be affected, only witholding may be. 

 

Aside from that, I have no idea if you'd be allowed to take the LSL in the half-pay form - and even if you could I don't know why you'd want to.

 

--------------------------------------------------------------------------------------------------------------
This is my personal view; I’m an ATO employee who chooses to help out here in my own time.

 

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Best answer

ATO Certified

Enthusiast

Replies 0

Hi Matt_E, 

 

In terms of Tax Witheld from Unused Leave (Generally grouped under Employment Termination Payments or ETP on ATO information), the calculation is a little tricky - LSL for a standard termination is taxed using the marginal rates tax process described here.

 

In essence, the amount of the LSL payout is spread over 12 months and the difference between the tax that was witheld and the tax that would have been witheld if the LSL payout had been evenly split and included in each pay packet is the amount witheld from the payout. For most people, this results in MUCH less tax than 60% (47% is the amount witheld if you didn't provide them a TFN at all so I can't imagine why it would ever be 60%).

 For the specific amount, this page has the specific calculations which you'd have to go through

 

 

In terms of your second question, if you were at the new job and still receiving some payments from the old one, you likely wouldn't be able to claim the tax free threshold from both - this would result in a higher rate of tax being witheld from that income. In any case, I don't see why you'd want to bother with spreading it over six months - the total tax owing at the end of the year wouldn't be affected, only witholding may be. 

 

Aside from that, I have no idea if you'd be allowed to take the LSL in the half-pay form - and even if you could I don't know why you'd want to.

 

--------------------------------------------------------------------------------------------------------------
This is my personal view; I’m an ATO employee who chooses to help out here in my own time.

 

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