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Ready For A New Start? Watch Out For The Tax On Your Unused Leave…

Thinking about starting the new year with a new job? It’s coming to that time of the year where a lot of Australians may be thinking about refreshing their careers with a change of pace, but that could leave them with taxable consequences for their unused leave.

For example, if you currently hold a job and are planning to leave it for the new opportunity that you have been given, there are some tax traps that might impact you.

When your job ends, whether there has been a termination of employment or redundancy you will receive a payment for unused leave. This payment will be taxed differently from your normal income.

This taxation will vary depending on the reason why you left the job and any unused entitlements that have been accrued over your employment (such as long service leave or sick leave).

The tax that you must pay depends on both:

  • the reason for leaving the job
  • any unused entitlements you may have accrued, such as long service leave or sick leave.

Lump-sum payments that you receive for unused annual leave or unused long service leave are taxed at a lower rate than other income. These lump-sum payments will appear on your income statement or payment summary as either ‘lump sum A’ or ‘lump sum B’.

These payments may also be taxed differently if you lost your job as a result of COVID-19 or were temporarily stood down.

If you are starting a new job, you should also think carefully about the tax-free threshold, as you will be able to claim that in the newest position. This will reduce the amount of tax that is withheld from your pay from your new job.

Concerned about the potential tax consequences of the role, and want some guidance about how a new job might impact your income tax return for 2021-22? Speak with us for guidance and a path forward when it comes to your tax.

If you’re someone who often finds it difficult to make large lump sum payments for goods or services, you may want to consider looking into “Buy Now Pay Later” services.

Buy now pay later essentially means that, rather than paying in a full lump sum payment for a product or services rendered, there may be an option to pay through instalments of a certain amount over a set period to make the sum of the full amount in total. This method should allow you to pay in full for the product or service without overly straining your finances – you pay back what you can, as agreed upon when you begin the buy now pay later service.

Some popular buy now pay later services include Afterpay, Zip Pay, Brightepay, and some credit card networks such as  Mastercard and Visa, can offer buy now pay later arrangements.

Though it can be a convenient, immediate solution, it may be challenging to juggle the necessary repayments with other financial commitments. It’s not always the most appropriate method for people, and you should bear in mind your situation and ability in paying back the amounts. 

Before you sign up, keep in mind: 

  • It becomes easier to overspend with buy now pay later services, so know your limits on what you can and can’t afford.
  • You will be charged fees and costs to use the service, which can add up to a princely sum in and of itself.
  • Keeping track of your payments can be tricky if you’ve signed up for multiple services.
  • It could affect your loan applications for a car or mortgage as lenders consider buy now pay later spending just as much as your credit score.
  • Late repayments can appear on your credit report, which affects your ability to borrow money in the future.
  • Layby can be a cheaper alternative to buy now pay later, with no account-keeping or late fees to consider

If you are someone who could make use of BNPL services, you may wish to:

  • Ensure that when using the BNPL service, you stick to a set limit on what you spend so that you can comfortably pay it back later. 
  • Aim only to have one BNPL account at a time to manage payments through, rather than confuse yourself with multiple payments across different providers.
  • Always budget for bills, loan payments and BNPL payments, and 
  • Rather than use your credit card for payments to your BNPL account, consider linking to your debit account instead.

If you would like assistance in planning your financial future, help in managing your budget or some friendly advice, see us for a chat about what we can do for you.

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John Briggs

Jane Noller has been my accountant for the last 15 plus years. I can testify to Jane’s professionalism and expeditious manner in dealing with the day to day issues that surrounds our business accounting.

John Briggs

Registered Building Certifier

David and Alison Parker

I have been consulting J L Noller and Co. (more specifically Jane) for six years and during this time I have found her to be professional, efficient and easy to discuss all accounting and taxation matters with. Her office team are all polite and friendly also.

David and Alison Parker

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Carl Gillmore

I have used Jane & the team for the last 6 years for all of my business & personal accounting needs. They have always been professional, easy to talk to & available when we have needed assistance.

Carl Gillmore

Carl Gillmore Landscape

John Briggs

Jane Noller has been my accountant for the last 15 plus years. I can testify to Jane’s professionalism and expeditious manner in dealing with the day to day issues that surrounds our business accounting.

John Briggs

Registered Building Certifier