Planning for retirement is a journey filled with important decisions. Let us be your guide in making those choices before you retire. In today’s blog, we’ll explore what you should consider before you retire, what you can do after you retire, and more related to your retirement. Let’s get started:

What to Consider Before You Retire?

There are crucial factors to consider:

  • your age if you’ve reached your preservation age
  • when you are allowed to get your superannuation
  • tax you need to pay on received amounts
  • special situations like employee share schemes
  • CGT retirement exemption for small businesses may require unique strategies.

Special rules will be applied if you get an employment termination payment, payments from an approved early retirement scheme or genuine redundancy payment. If you leave your job for other reasons, such as a change of industry, termination, or leaving Australia, the tax on payments you receive may vary.

Payments Leading into Retirement

If you receive a lump sum payments for unused annual or long service leave from your employer, you may be liable to pay tax on it at a lower rate as compared to your other income. Your employer will report any sum payments on your income statement or payment summary at either ‘Lump sum A’ or ‘Lump sum B’. You will need this information when you prepare your tax return.

When you are dismissed, you will receive redundancy payments. It usually happens because the job you’ve been doing has been dismissed. Redundancy payments are tax-free up to a certain maximum dependent on the number of years you worked for that business.

Your employer may provide staff with an early retirement scheme to make groups of employees retire early or resign. Under the early retirement scheme, you may have to pay less tax on payments.

After Your Retirement

Once you retire, explore the tax offsets available to you such as:

  • Seniors and pensioners’ tax offset
  • Superannuation income stream tax offset.

If you receive income from an Australian superannuation income stream, you can claim a tax offset if you:

  • receive a disability superannuation benefit
  • get a death benefit income stream
  • 60 or over.

Employee Share Scheme

If you are a member of the employee share scheme, you must consider the ‘good leaver’ conditions. In ESS, good leaver conditions may enable employees to retain ESS interests if they stop employment to retire from the workforce permanently during the forfeiture period.

Whether the ESS interests obtained with good leaver conditions under an ESS are at a real risk of forfeiture will be based on the facts and situations. This includes how the ESS runs and the employee’s personal situations.

CGT Retirement Exemption for Small Business

If you sell assets of your small business, the capital gains tax retirement concession may apply. The retirement concession can exempt a capital gain on an asset of a business, up to a lifetime retirement exemption limit of $500,000. This concession enables you to give you for retirement.

There is no need to terminate any activity or cease business if you opt for the retirement exemption. If you are under 55 years old just before you decide to use the retirement exemption, you have to personally contribute equivalent to the exempt amount to a complying super fund or a retirement savings account.

Transition to Retirement Rules

Under the transition to retirement rules, when you have reached your preservation age, you can reduce your working hours without minimising your income. You can do this by deciding to start a transition to a retirement income stream (TRIS).

The TRIS payment tops your part-time income by providing a regular ‘income stream’ from your super funds. Previously, you could only access your super after reaching the age of 65 or retiring. Under these rules, you are allowed to access your super benefits as a non-commutable income stream. A non-commutable income stream can’t be converted into a lump sum. It means you are not allowed to take your benefits as lump sum cash payments when you are still working.

Now, you know what you should consider when you plan to retire. Apart from this, you can have also access to tax offsets after your retirement. Secure your retirement with Reliable Melbourne Accountants.

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