I need to know....

[Lightning McQueen]

Does anyone know if you cash in some annual leave do you get taxed at a higher rate or is it just a myth?

[whufc]

Does anyone know if you cash in some annual leave do you get taxed at a higher rate or is it just a myth?

Yeah you definitely do.

I believe 19% but don't quote me on that part but it is definitely more.

You also cant have less than four weeks leave remaining either.

[Trader]

Does anyone know if you cash in some annual leave do you get taxed at a higher rate or is it just a myth?

Seek financial advice relevant to your own situation, blah blah blah.

Ok, there are a few things at play here, which depending on where you sit and how you view things and how your employer does the payment that will change how you view the answer to the question, have I been taxed at a higher rate?

Scenario 1:
Lets say you earn $115k, you're in the 32.5c bracket. - tax brackets available here: https://www.ato.gov.au/rates/individual ... tax-rates/
If you get paid out $10k worth of leave, that puts half that 10k in the 32.5c bracket, and then the second 5k goes in the 37c bracket.

So yes, that portion of your annual leave payout will get taxed at a higher rate than your normal pay.

Now, the next option.
Scenario 2:
Lets say you earn $100k, and get paid out $10k of annual leave. You are still within the 32.5c bracket (as your total remains under $120k).
However, some people will still say they have been taxed at a higher rate based on their average tax paid.
EG: On the base 100k, you've paid nil on your first 18.2k, 19c on the income from 18.2-45k, and 32.5c for everything from 45k to 100k. This gives a total tax paid of $22,967. This gives them an effective tax rate of 23c in the dollar over their 100k, so then when their extra 10k gets taxed at 32.5c they feel that their are being taxed at a higher rate than normal.

So you might answer yes or no, depending on how you view this scenario.
FWIW, I say that's its a no, as you are getting taxed the same if your base pay was 110k, or if it is 100k plus 10k of annual leave paid out.

Now for the third option:
Scenario 3:
You're within the same bracket, however your company payroll lady doesn't really understand how the tax system works. Sure they have a broad understanding, but don't get the finer details. You usually get paid fortnightly, and on 100k, that's 4k per pay period (rounded) before tax. Now in this pay, you get 'paid' $14k as you have your $10k of paid out annual leave in there.
So the payroll lady looks at the fortnightly tax tables, which assume that's your pay every fortnight, and they tax you as if you are going to earn 350k over the year (14k x 25ish fortnights). So all of a sudden you are up in the Gina Reinheart brackets and getting done at 45c/dollar.

Now, people 100% will say yes, you've been taxed at a higher rate. However, what they fail to consider is that those extra 12.5c per dollar you've paid, you will get it back when you do your tax return and they see your yearly income was 110k, not 350k. So after your tax return has been processed, you have NOT paid extra tax by getting your annual leave paid out, you just happened to have forced savings for the period between when you got paid and when you did your tax return.

Happy to explain further if the above has raised any questions for you.
Also happy to do it via PM if you want to talk specific numbers without broadcasting it over the internet for all the others to read.

But in short, no, the tax system is set up in such a way that you won't pay more tax than you should have to.

[Lightning McQueen]

Does anyone know if you cash in some annual leave do you get taxed at a higher rate or is it just a myth?

Yeah you definitely do.

I believe 19% but don't quote me on that part but it is definitely more.

You also cant have less than four weeks leave remaining either.

I'm pretty sure with our company I read that we can cash 150 hours in providing we still have 75 hours remaining after that.

[Lightning McQueen]

Does anyone know if you cash in some annual leave do you get taxed at a higher rate or is it just a myth?

Seek financial advice relevant to your own situation, blah blah blah.

Ok, there are a few things at play here, which depending on where you sit and how you view things and how your employer does the payment that will change how you view the answer to the question, have I been taxed at a higher rate?

Scenario 1:
Lets say you earn $115k, you're in the 32.5c bracket. - tax brackets available here: https://www.ato.gov.au/rates/individual ... tax-rates/
If you get paid out $10k worth of leave, that puts half that 10k in the 32.5c bracket, and then the second 5k goes in the 37c bracket.

So yes, that portion of your annual leave payout will get taxed at a higher rate than your normal pay.

Now, the next option.
Scenario 2:
Lets say you earn $100k, and get paid out $10k of annual leave. You are still within the 32.5c bracket (as your total remains under $120k).
However, some people will still say they have been taxed at a higher rate based on their average tax paid.
EG: On the base 100k, you've paid nil on your first 18.2k, 19c on the income from 18.2-45k, and 32.5c for everything from 45k to 100k. This gives a total tax paid of $22,967. This gives them an effective tax rate of 23c in the dollar over their 100k, so then when their extra 10k gets taxed at 32.5c they feel that their are being taxed at a higher rate than normal.

So you might answer yes or no, depending on how you view this scenario.
FWIW, I say that's its a no, as you are getting taxed the same if your base pay was 110k, or if it is 100k plus 10k of annual leave paid out.

Now for the third option:
Scenario 3:
You're within the same bracket, however your company payroll lady doesn't really understand how the tax system works. Sure they have a broad understanding, but don't get the finer details. You usually get paid fortnightly, and on 100k, that's 4k per pay period (rounded) before tax. Now in this pay, you get 'paid' $14k as you have your $10k of paid out annual leave in there.
So the payroll lady looks at the fortnightly tax tables, which assume that's your pay every fortnight, and they tax you as if you are going to earn 350k over the year (14k x 25ish fortnights). So all of a sudden you are up in the Gina Reinheart brackets and getting done at 45c/dollar.

Now, people 100% will say yes, you've been taxed at a higher rate. However, what they fail to consider is that those extra 12.5c per dollar you've paid, you will get it back when you do your tax return and they see your yearly income was 110k, not 350k. So after your tax return has been processed, you have NOT paid extra tax by getting your annual leave paid out, you just happened to have forced savings for the period between when you got paid and when you did your tax return.

Happy to explain further if the above has raised any questions for you.
Also happy to do it via PM if you want to talk specific numbers without broadcasting it over the internet for all the others to read.

But in short, no, the tax system is set up in such a way that you won't pay more tax than you should have to.

Cheers mate, a wealth of knowledge as per usual.

I get paid monthly and cashing in 4 weeks won't put me into the $120K =+ category.

Work is on to us to reduce our leave but due to an injury, someone else taking some carers leave and another person leaving I'm unable to take any until June/July, I haven't had any time off since Christmas 2020 and was hoping to squeeze in a week or two now or in March.

I've given up hope so I thought I may as well cash some in as I'm looking at getting a new car soon so this will see me borrowing less.

[Lightning McQueen]

A new position will become available next month that I'll be applying for so I'll be holding off until I learn my fate as it could potentially be considerably more.

I'm in no rush for a car in any case, I'm still not sold on what genre of car that I'm after, I've narrowed it down to either a hatch, SUV, ute or a Mustang, I have some serious thinking to do to start eliminating some.

A Toyota or Mazda for a hatch or SUV, I had a Ford Ranger for a little while which was quick off the mark for a big car but chewed through diesel just thinking about going anywhere. I've always wanted a Mustang, they've been in our family since I can remember and now they are quite affordable.................or is it screaming out MLC for me?

[amber_fluid]

A new position will become available next month that I'll be applying for so I'll be holding off until I learn my fate as it could potentially be considerably more.

I'm in no rush for a car in any case, I'm still not sold on what genre of car that I'm after, I've narrowed it down to either a hatch, SUV, ute or a Mustang, I have some serious thinking to do to start eliminating some.

A Toyota or Mazda for a hatch or SUV, I had a Ford Ranger for a little while which was quick off the mark for a big car but chewed through diesel just thinking about going anywhere. I've always wanted a Mustang, they've been in our family since I can remember and now they are quite affordable.................or is it screaming out MLC for me?

Aren’t you a corvette?

[Booney]

A new position will become available next month that I'll be applying for so I'll be holding off until I learn my fate as it could potentially be considerably more.

I'm in no rush for a car in any case, I'm still not sold on what genre of car that I'm after, I've narrowed it down to either a hatch, SUV, ute or a Mustang, I have some serious thinking to do to start eliminating some.

A Toyota or Mazda for a hatch or SUV, I had a Ford Ranger for a little while which was quick off the mark for a big car but chewed through diesel just thinking about going anywhere. I've always wanted a Mustang, they've been in our family since I can remember and now they are quite affordable.................or is it screaming out MLC for me?

If you get the 2.3lt Mustang we can't be friends anymore.

[Lightning McQueen]

A new position will become available next month that I'll be applying for so I'll be holding off until I learn my fate as it could potentially be considerably more.

I'm in no rush for a car in any case, I'm still not sold on what genre of car that I'm after, I've narrowed it down to either a hatch, SUV, ute or a Mustang, I have some serious thinking to do to start eliminating some.

A Toyota or Mazda for a hatch or SUV, I had a Ford Ranger for a little while which was quick off the mark for a big car but chewed through diesel just thinking about going anywhere. I've always wanted a Mustang, they've been in our family since I can remember and now they are quite affordable.................or is it screaming out MLC for me?

If you get the 2.3lt Mustang we can't be friends anymore.

If I got one of them I wouldn't be my friend.

I was just saying last night , YTF did they? Wouldn't you get one for the grunt and feel? They also come in hybrid apparently.

[Lightning McQueen]

A new position will become available next month that I'll be applying for so I'll be holding off until I learn my fate as it could potentially be considerably more.

I'm in no rush for a car in any case, I'm still not sold on what genre of car that I'm after, I've narrowed it down to either a hatch, SUV, ute or a Mustang, I have some serious thinking to do to start eliminating some.

A Toyota or Mazda for a hatch or SUV, I had a Ford Ranger for a little while which was quick off the mark for a big car but chewed through diesel just thinking about going anywhere. I've always wanted a Mustang, they've been in our family since I can remember and now they are quite affordable.................or is it screaming out MLC for me?

Aren’t you a corvette?

Sort of, according to Prince I am.

[Brodlach]

The way I look at new cars;

Car A $20,000
Gets from A to B
Air conditioning
Sound system


Car B $50,000
Gets from A to B
Air conditioning
Sound system
Little extra comfort from my 15 minutes drive.

Means I have $30,000 I can use elsewhere or have in my home loan if I go for car A

[Booney]

I'm going back.

[MW]

I'm going back.

Not since MJ has this statement had such an effect
Well done mate

[whufc]

I'm going back.

All the best mate.

Keep us updated on how it goes.....cheering for ya.

[Booney]

I'm going back.

Not since MJ has this statement had such an effect
Well done mate

[Booney]

Thanks lads, felt right, some changes have been made for me and the office and my role will be a bit different and get what I was after/promised here, a small team to manage.

Two blokes ( Engineer and the other Account Manager ) have quit here in the last 2 weeks, I reckon boss man is going to blow up colossal when I tell him.

[Lightning McQueen]

I'm going back.

Best of luck mate.

[Lightning McQueen]

The way I look at new cars;

Car A $20,000
Gets from A to B
Air conditioning
Sound system


Car B $50,000
Gets from A to B
Air conditioning
Sound system
Little extra comfort from my 15 minutes drive.

Means I have $30,000 I can use elsewhere or have in my home loan if I go for car A

I will end up using this philosophy no doubt.

Something reliable, comfortable and cheap to run, I'll grow out of the Mustang phase when it comes time to parting with the coin.

[Lightning McQueen]

Thanks lads, felt right, some changes have been made for me and the office and my role will be a bit different and get what I was after/promised here, a small team to manage.

Two blokes ( Engineer and the other Account Manager ) have quit here in the last 2 weeks, I reckon boss man is going to blow up colossal when I tell him.

Can you please record it or ring me on speaker phone when you tell him?

[RB]

Does anyone know if you cash in some annual leave do you get taxed at a higher rate or is it just a myth?

Seek financial advice relevant to your own situation, blah blah blah.

Ok, there are a few things at play here, which depending on where you sit and how you view things and how your employer does the payment that will change how you view the answer to the question, have I been taxed at a higher rate?

Scenario 1:
Lets say you earn $115k, you're in the 32.5c bracket. - tax brackets available here: https://www.ato.gov.au/rates/individual ... tax-rates/
If you get paid out $10k worth of leave, that puts half that 10k in the 32.5c bracket, and then the second 5k goes in the 37c bracket.

So yes, that portion of your annual leave payout will get taxed at a higher rate than your normal pay.

Now, the next option.
Scenario 2:
Lets say you earn $100k, and get paid out $10k of annual leave. You are still within the 32.5c bracket (as your total remains under $120k).
However, some people will still say they have been taxed at a higher rate based on their average tax paid.
EG: On the base 100k, you've paid nil on your first 18.2k, 19c on the income from 18.2-45k, and 32.5c for everything from 45k to 100k. This gives a total tax paid of $22,967. This gives them an effective tax rate of 23c in the dollar over their 100k, so then when their extra 10k gets taxed at 32.5c they feel that their are being taxed at a higher rate than normal.

So you might answer yes or no, depending on how you view this scenario.
FWIW, I say that's its a no, as you are getting taxed the same if your base pay was 110k, or if it is 100k plus 10k of annual leave paid out.

Now for the third option:
Scenario 3:
You're within the same bracket, however your company payroll lady doesn't really understand how the tax system works. Sure they have a broad understanding, but don't get the finer details. You usually get paid fortnightly, and on 100k, that's 4k per pay period (rounded) before tax. Now in this pay, you get 'paid' $14k as you have your $10k of paid out annual leave in there.
So the payroll lady looks at the fortnightly tax tables, which assume that's your pay every fortnight, and they tax you as if you are going to earn 350k over the year (14k x 25ish fortnights). So all of a sudden you are up in the Gina Reinheart brackets and getting done at 45c/dollar.

Now, people 100% will say yes, you've been taxed at a higher rate. However, what they fail to consider is that those extra 12.5c per dollar you've paid, you will get it back when you do your tax return and they see your yearly income was 110k, not 350k. So after your tax return has been processed, you have NOT paid extra tax by getting your annual leave paid out, you just happened to have forced savings for the period between when you got paid and when you did your tax return.

Happy to explain further if the above has raised any questions for you.
Also happy to do it via PM if you want to talk specific numbers without broadcasting it over the internet for all the others to read.

But in short, no, the tax system is set up in such a way that you won't pay more tax than you should have to.

I can't add anything to this perfect summary, except to stress that in Australia there is never any tax disincentive to earning more income.

Actually, I will add something to demonstrate this.

Imagine a staircase, where the height of each successive step represents a taxable income figure, ordered from $1 to infinity.

Now imagine another staircase, where the height of each successive step represents the 'net income' (i.e. after tax) figure that corresponds to each taxable income step.

So $75,000 on the first staircase corresponds to $58,658 on the second staircase, $75,001 corresponds to $59,658.66, etc. (Rough figures, would generally be a bit less after applicable offsets.)

Now, the first staircase obviously ascends to infinity, with each step being a dollar higher than the last.

This next bit is why there's no tax disincentive to earning more money, regardless of how much more or the effect of tax brackets.

Just as each step on the first staircase is higher than the last, without exception, so too is each step on the second staircase. With each extra dollar you earn, your 'net income', after tax, increases. The second staircase never heads downward, not even slightly.

While ending up in a higher tax bracket means that you will pay a greater rate of tax on income within that bracket, this is outweighed by the increased income you have earned, as the tax man will never take more than 45c to the dollar, and that's if you're in the top bracket. In order to end up with less after earning more income, the tax man would need to take more than 100c to the dollar. Obviously that isn't going to happen.

The only difference when you end up in a higher bracket is that each step in the second staircase doesn't rise by as much now. But it is always still higher than the previous one.

The only exception to this I can think of would be where you do not have private health insurance and your taxable income ticks over the Medicare levy surcharge threshold ($90k for singles), in which case you have to pay the surcharge. Probably worth considering health insurance if that's you.

As Trader said, even if your work cocks up your pay, you'll get back anything you're owed after completing your tax return.

So in sum, the more money you earn, the more money you keep.

<above is general advice; seek advice about your own circumstances from a professional etc.>