July 2025 Newsletter

Please click on the following link to view this month's newsletter for July 2025. We would like to highlight the following article:-

Accrued leave: take a holiday or take the payment?

f you’re approaching retirement and have accrued significant annual or long service leave, deciding whether to take the leave before retiring or receive it as a lump sum payment on retirement can have important tax, superannuation, and Centrelink implications.

Superannuation Implications:

Employers are required to make super guarantee contributions on wages paid while you're on leave.
No super is paid on lump sum leave payments made upon retirement.
Taking leave before retirement may boost your super balance through additional contributions and extend your window to make personal contributions.

Meeting the Work Test for Super Contributions:

Individuals aged 67 to 75 must meet the work test (working 40 hours within a consecutive 30-day period) to claim a tax deduction for personal contributions.
A once-only work test exemption applies for those with super balances below $300,000, allowing them to contribute for an extra year based on the prior year’s work test.

Taking leave before retirement and meeting the 40-hour requirement may enable you to extend your contribution window and claim a final super deduction.

Tax and Income Planning:

Lump sum payments are taxed in the financial year received. Taking leave and retiring in a subsequent year could result in a lower marginal tax rate if you have no other income.
You may also increase your cap for concessional treatment of employment termination payments, such as redundancy or golden handshake payments.

Centrelink Considerations:

Lump sum leave payments received at retirement are excluded from the income test but count as assets under Centrelink’s asset test, potentially affecting Age Pension eligibility.
Holiday pay received before retirement is not assessed when determining pension eligibility after retirement.

Summary:

Taking your leave before retirement can enhance super contributions, extend eligibility for deductions, and provide greater tax planning flexibility.
Receiving a lump sum payment may simplify the retirement process and assist with earlier access to social security, subject to asset implications.

Please do not hesitate to contact us if you have any queries in relation to your tax and accounting matters.