Do I have to pay tax on my redundancy payout?

If I receive a lump-sum payment as part of a genuine redundancy – specifically for unused annual leave and accrued long service leave (Type A) – is this treated as assessable income for tax purposes? And if so, can I offset the tax by making a concessional super contribution before the end of that same financial year?

Yes, any unused leave payments received as a lump sum are assessable income for tax purposes. However, where it has been received as a result of genuine redundancy, these leave payments will be subject to concessional tax rates.

If you are being paid out unused annual leave as part of your redundancy, you’ll have to pay tax. But there are some ways you can reduce how much you pay.Credit: Simon Letch

In these circumstances, unused annual and long service leave payments accrued on or after August 16, 1978 are subject to a maximum tax rate of 30 per cent (plus 2 per cent Medicare levy).

If you have not used up your concessional contributions cap, you could consider making tax-deductible concessional super contributions to reduce your assessable income and offset some or all of the tax on the unused leave payments.

My wife is 65 and earns $44,460 per year. In a recent column, you mentioned that someone in her situation could consider making an after-tax contribution of $1000 to her superannuation to qualify for a government co-contribution of $500. How does the super co-contribution scheme work, what conditions need to be met, and will she be eligible to receive the full benefit?

If she makes a personal after-tax contribution of $1000 to her super fund, the government could contribute up to $500. To qualify, her total income must be under $60,400, she must lodge a tax return, have a total super balance under $1.9 million, and earn at least 10 per cent of her income from employment or self-employment.

Once she lodges her tax return, the ATO automatically pays the co-contribution into her super fund without needing to apply.

I am currently receiving a government Centrelink pension. How much am I allowed to spend on overseas travel each year while still remaining within Centrelink’s rules? In particular, I would like to know whether overseas travel expenses can be deducted or offset from my savings to help reduce the deeming amount that Centrelink applies when assessing my pension eligibility.

Centrelink places no specific limit on how much a person can spend on travel, home renovations, or even purchasing a burial plot. However, it’s important to remember that for every $100,000 you dispose of, your age pension entitlement would increase by only about $7800 a year (where the assets test is the dominant test).

This means it would take more than 12 years of receiving the higher pension to recoup the amount you spent. My advice is simple: travel joyfully and create wonderful memories, but always look for value. Never spend money unnecessarily just to boost your pension – you could end up poorer, not richer.

I am 82 and own a negatively geared rental property, which I had originally intended to leave to my son in my will. However, I am now considering transferring the property to him during my lifetime.

I understand that capital gains tax would be payable based on the property’s current market value, less any eligible deductions. Could you clarify what expenses may be used to reduce the CGT liability? Also, is gift duty applicable, and would stamp duty be payable even though no money will change hands? The property was purchased for $105,000 in 1992 and is now valued at approximately $780,000. Once transferred, it will become my son’s principal place of residence. Could you advise how the transfer should be structured, given that no payment will be made?

The cost base includes your original purchase price, plus costs like stamp duty, legal fees, and any renovation expenses you didn’t claim as tax deductions. Because you’ve owned the property for a long time, you’ll qualify for a 50 per cent CGT discount.

From what you’ve told me, your net profit after the discount would be about $300,000. This would be added to your taxable income in the year you sign the sales contract. Depending on your other income, your CGT bill could be around $120,000.

Given your son plans to live in the house long-term, it might be better to leave it to him in your will. That way, no CGT is triggered now — it would only arise when he eventually sells, and it could be reduced if the property is his home.

If you’re worried about challenges to your will, you could transfer 50 per cent of the property to him now as a joint tenant. The rest would pass to him automatically when you die, and transferring only half now would mean a smaller CGT hit.

Noel Whittaker is the author of Retirement Made Simple and other books on personal finance. Questions to: [e-mail]

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

Expert tips on how to save, invest and make the most of your money delivered to your inbox every Sunday. Sign up for our Real Money newsletter.