Long Service Leave Deposited on Superannuation

LdwTime on 12/01/2021 - 12:20

Hi Everyone,

My company has confirmed that they are happy to cash out my long service leave.

I was thinking to put that money in my Superannuation Fund as personal contribution.
One of the reason for transferring it to Superannuation is due to fact that, if the money is with me, I may spend it.

I thought it may be beneficial for me or my family later, if I put it in Superannuation.

My doubt is -
"What is the most efficient way to transfer the money to Superannuation Fund, without incurring too much tax on the money?"

Thanks

Financial Superannuation

Comments

  • Porker on 12/01/2021 - 12:26

    Have a talk to your Super Fund as there are limitations on how much you can contribute.

    Why are you having the Long Service paid out? Are you resigning or retiring? Just asking as there are other methods with this too to avoid jumping into (as example) the next tax bracket if it's paid out, or if you exceed the super contribution.

    • dwTime on 13/01/2021 - 12:09

      I don't want to take leave because, the department that I am working, I won't be able to get the leave together.
      I have to break it and take it here and there which I don't find useful. That's why I thought of cashing it out.

      Also the main reason is - I thought its better to have it in cash, rather than taking the leave.
      I can save the money for future use.

      Could you please advise how I can avoid the payment not falling into the next tax bracket?
      (Just asking, if I decide not to put the money into superannuation)

      Thanks.

      • sangohan on 03/03/2021 - 16:26

        how I can avoid the payment not falling into the next tax bracket?

        you cannot - that's called tax evasion. But what you could do is take on more debt and invest (e.g., property mortgage, or borrow for shares on margin), and those interest payments for investment can be deducted from your income pre-tax. This means you save on having to pay the tax, but reap the investment rewards. Unfortunately, it's not really possible to have more cash in hand doing this.

  • pndl on 12/01/2021 - 12:29
    +2

    Claim a tax deduction on your voluntary super contribution.
    Once you get your money (with tax deducted), contribute it to your fund. Then, you need to fill a Notice of intent to claim. At year end, you can claim a deduction on the contribution.
    Make sure you dont exceed the concessional contributions cap.

    • avoidfullprice on 12/01/2021 - 13:20

      This.

      Cash it out close to EOFY, so you can claim the tax back sooner would be my thought.

      if the money is with me, I may spend it.

      Kinda agree with comment the below, just keep that as leave.

      Need to check yourself - does LSL payout include super guarantee component? e.g. for each LSL day of salary, there should be 9.5% that goes into your super. If so, there is benefit holding off until next FY when the SG rate increases to 10%

      https://www.canstar.com.au/superannuation/super-long-service…

    • dwTime on 13/01/2021 - 12:13

      Thanks for the advise.

      I will look into these option.

      My LSL cash out is not a big amount, as I was on the lower pay scale, monthly.

      The amount comes less than $8000.

  • Fredfloresjr on 12/01/2021 - 12:32
    +4

    Just leave it as it if I were you. You will never know when will you need a break from work.

    • dwTime on 13/01/2021 - 12:14

      Thanks.

  • bobbified on 12/01/2021 - 12:33

    Contribution caps are what you need to think about for Super.

    Do you have a mortgage or anything that you can put the money towards? It'll be in a good place, but it'll still give you access if you really need it. Or are you thinking about buying a property soon? Unless you're close to retirement age, if that money goes into Super, you won't see it again for a long long time. A lot of people do what you are thinking of doing and then regret it in a few years time when they have cashflow issues - so I would suggest you think very carefully before locking that money away permanently.

    • dwTime on 13/01/2021 - 12:16

      Thanks for your advise.

      I don't have mortgage.
      Also I am not thinking to buy property soon.

      I will definitely look into other options before investing in superannuation.

      I thought of two advantages putting the money in super:
      1. Getting tax benefit
      2. I can utilize the money later when i retire.

      • bobbified on 13/01/2021 - 12:45
        -1

        I forgot to mention that since LSL will be taxed at your marginal tax rate, try and cash it out in a financial year when you think or know your taxable income is going to be lower (or lowest) and it might fall into a lower tax bracket.

        • Eeples on 02/03/2021 - 16:29

          Why was this negged?

          Doesn't this make sense?

          I suppose it depends when your last day is; Will your employer split the payout across financial years?

          Even if they don't, making after-tax payments to super, might be best made (in some combination) in June or July depending on your concessional limit in 2020-2021.

          As others have said; make sure you remember to lodge an 'intention to claim a deduction' with your super provider.

  • WreckTangle on 12/01/2021 - 12:39
    +3

    Take it as leave & spend time with your family

    • dwTime on 13/01/2021 - 12:16

      Thanks.

  • tsunamisurfer on 12/01/2021 - 12:51

    "What is the most efficient way to transfer the money to Superannuation Fund, without incurring too much tax on the money?"

    You will get paid that money post-tax as per all your other pay.

    You will make a non-concessional contribution to your super.

    At tax time you will claim that you have made $x of such contributions and your tax will reduce accordingly.

    • dwTime on 13/01/2021 - 12:17

      Thanks

  • GG57 on 12/01/2021 - 13:20
    +2

    I intend to continue accruing LSL as the leave accrual is based in hours / days. As my salary increases (acknowledged as limited these days, but CPI at least), those same hours / days are actually worth more to me in financial terms than if I had availed of the leave.

  • toniyellow on 12/01/2021 - 13:29

    If you can get it all as a concessional contribution it will be very tax effective, you just have to be careful you don't exceed the cap.

    Calculate the $ value of your leave

    Calculate how much of the concessional cap you will use this year, and how much you will have left over.

    If that's not enough log into the ATO via mygov, see if you have any unused carry forward concessional contributions cap from previous years.

    • dwTime on 13/01/2021 - 12:18

      Thanks for the advise.
      I would like to know more about this.

  • brad1-8tsi on 12/01/2021 - 13:31

    I'm not seeing the point of cashing out LSL if you haven't a use for it… or do u think the business is at risk?

    • dwTime on 13/01/2021 - 12:21

      I would prefer to cash out the LSL, rather than taking the leave.

      My dept. won't allow me to take the LSL together.
      Also I thought, its better for me to take the money, rather than taking the leave.

      Thanks

  • Quantumcat on 12/01/2021 - 17:06

    Don't cash it out unless you're leaving your job and can't transfer it to your new employer, or you think you'll be going down in income (making the hours you have accrued worth less than before)

  • Venustrap87 on 12/01/2021 - 20:01

    Let it build up Or use some of it mate

  • WreckTangle on 12/01/2021 - 20:06

    Isn’t it illegal to cash in lsl without leaving a job?

    • modsec802 on 12/01/2021 - 20:43

      Not illegal per se but some employers won’t allow cashing out until 10 years whereas they’ll let you access it as leave at 7 years

  • WreckTangle on 12/01/2021 - 22:23

    Yeah, i think there was a rule change

    Long service leave usually can't be cashed out while the employee is still working for the business.

    https://www.fairwork.gov.au/leave/long-service-leave/payment…

    Cashing out of long service leave is unlawful in New South Wales, Victoria, the Northern Territory and the Australian Capital Territory…

    https://www.peopleculture.com.au/show-me-the-money-cashing-o…

    • bobbified on 13/01/2021 - 12:43

      Assuming the OP is in WA based on his profile,

      Can an employee cash out their long service leave?

      An employer and employee may agree to cash out an employee's long service leave once the employee has completed the necessary period of continuous employment and accrued the leave.
      A long service leave entitlement cannot be cashed out in advance of the employee having completed the necessary continuous employment (i.e. prior to the leave being accrued), either through a lump sum payment or a loaded up base rate of pay or commission payment.
      An agreement to cash out long service leave must be in writing.
      The employee must be given an adequate benefit for the leave they have cashed out.

      (https://www.commerce.wa.gov.au/labour-relations/long-service…)

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