Understanding redundancy and its financial implications has become more relevant than ever in today’s turbulent economic environment.

In Australia, major corporations have had to downsize as a result of the current global financial crisis. This mass scale back is having very real effects on the Australian job market. These job losses are making redundancy a more common issue in many Australian lives. Welcomed by some, but dreaded by most, redundancy generally makes for a stressful time. Making sense of it all can be tricky.

A financial adviser can be your best port of call to guide you through these strategies. The difference between no advice and good advice may be the difference in how well you manage the financial implications, such as tax consequences and changes to social welfare entitlements the redundancy process.

Where to start?
The first step is being aware of what you’re entitled to and how the payments affect your current plans and income. Ensuring you get your full entitlements can make a big difference.

Any outstanding wages, unused annual leave and long service leave should be taken into account. Then, depending on the nature of work and workplace agreement, there can also be a termination payment, some of which may be in the form of a tax-free lump sum.

Tax implications
Where things start to get complex is with the tax consequences of payments. Each component of the package is taxed differently and depends on a number of factors, so there are no hard and fast ways of discussing redundancy taxation – it all depends on the individual.

Depending on what stage in life you are at, the financial opportunities can be quite different. For example, in some cases you could direct your payment into superannuation to generate tax savings. If you are approaching preservation age or retirement you might be able to draw this out as a superannuation pension.

If you’re receiving any government benefits, such as family tax benefits or baby bonus, these could be impacted by a termination payment.

Managing debt
One common issue with lump sum payments is whether or not you should use it to reduce debt, such as a mortgage or credit card debts. There is different tax and social security implications between using redraw facilities and mortgage offset accounts and these need to be taken into consideration.

Seeking advice to help you develop solid strategies to manage debt, superannuation, insurance and tax implications of redundancy may help you get the best outcome out of your situation.

Brett Abikhair has over 20 years experience in the finance industry. He has an Advanced Diploma of Financial Services (Financial Planning), Diploma of Mortgage Lending and specialist certification in Self Managed Superannuation Funds. Brett Abikhair and ABS Capital Pty Ltd trading as Real People Financial Services are Authorised Representatives of Consultum Financial Advisers Pty Ltd AFS Licence No 230323 ABN 65 006 373 995.

Disclaimer and General Advice Warning
This material is current as at July 2009 but may be subject to change This article has been issued by Consultum Financial Advisers Pty Ltd (Consultum), ABN 65 006 373 995, Australian Financial Services Licence No. 230323. The information in the article contains factual information and general financial product advice only. It has been prepared without taking into account any person’s individual investment objectives, financial situation or particular needs. A person should not act on this information without first talking to a financial adviser. This information is given in good faith based on information believed to be accurate and reliable at the time of publication, including the continuance of present laws and Consultum’s interpretation of them. Consultum does not undertake to notify recipients of changes in the law or its interpretation. Forecasts and other representations about future matters are based on economic and other factors. These factors can change and this can affect the future outcomes. This article contains some general tax information. While your Consultum financial adviser can advise you on the tax implications of any recommended strategy, we are not accountants or tax advisers and are unable to provide tax advice as such. We therefore recommend you consult your accountant to ensure that you understand the tax implications for you of any recommended strategies. While all care has been taken in preparing this newsletter, Consultum gives no warranty of accuracy or reliability, accepts no responsibility for any errors or omissions, including by reason of negligence, and shall not be liable for any loss or damage whether direct, indirect or consequential arising out of, or in connection with, any use of, or reliance on,
the information contained in this article.