In recent months there has been an increase in redundancies across a range of business sectors. With many executives enjoying immediate re-employment, redundancy can provide a windfall that could very likely enable them to become financially set for life.
However, and especially for some long serving and highly paid executives who may be entitled to a vast amount of after-tax dollars, making tax-effective financial decisions will be imperative for making the most of what could be a once-only financial opportunity.
While some executives may choose an early retirement, for others the very high likelihood of immediate re-employment provides a different set of circumstances that may need to be considered in context of their upcoming remuneration package.
Even with the comfort of significant surplus cash thanks to a redundancy payout, it’s important for executives to compare the benefits and value of their new role offer against the role they’ve just left. I’ve written about remuneration comparison previously, and I invite you to read it again here.
Generally speaking, executives often have significant financial complexity. This is usually due to their very high earnings and the contents of their remuneration package which often includes an executive share scheme.
While all executives whose roles have been made redundant require specialised financial and tax advice, for ‘re-employed’ executives who may be settling into a new and demanding role it is particularly recommended.
This is because the added time pressure of juggling a new role with your personal financial administration, can mean the process of gathering information necessary and making important decisions can take a back seat. The outcome is commonly financial, tax and sometimes legal missteps that can adversely affect the safeguarding and management of personal wealth.
Among the key financial matters to be considered will be how to use surplus ‘redundancy’ cash and manage proceeds from other investments in context of personal cashflow and dealing with debt. Consideration should also be given to mitigating any personal financial risks.
In my experience advising executives for nearly a decade, there are many different scenarios for using redundancy money, the key is to pare these back to expose the financial priorities that are right for individual circumstances and balance ‘now’ money use with medium and long term ‘future’ money use.
That may include exploring options for increasing savings and reducing debt, growing superannuation balances, building upon existing investments or establishing a portfolio of shares that may generate future additional income streams past paid employment.
When it comes to employee share schemes (ESS) things can get even more complicated as there will be both wealth and tax implications on shares that may vest on a pro-rata basis due to your position becoming redundant.
The key point, I’d like to make about ESS is that failing to meet ATO requirements usually results in unexpected tax bills, and sometimes penalties, that can cause considerable disruption to personal cashflow or cause an unwanted share sale to meet that obligation.
Being financially organised will enable you to be aware of your tax commitments and when they are due for payment. As you can imagine, without the required paper trail, disputing a claim by the ATO can be extremely time consuming to defend. No one wants to pay more tax than necessary or be the recipient of an expected (and unwelcome) tax liability.
In most circumstances, executives whose roles are made redundant (including voluntary redundancy) under its executive share scheme conditions are deemed ‘good leavers’ by the company. I’ve written about this in my earlier article, Executive Share Schemes and Redundancy and I invite you take a moment to read it, then if you could benefit from further information and advice relating to your particular circumstances, please give me a call.
Redundancy, particularly for long serving and senior executives, can represent a significant windfall, and when managed according to your specific financial circumstances, it could even result in you becoming financially set for life.
If your role has recently been made redundant and especially if you have an ESS, please contact James Marshall for a 20-minute discussion. You can call James on +61 (0) 7 3007 2080 or email contact@executivestrategies.com.au
To learn more about James Marshall, visit this link.
Executive Strategies is a specialised information hub for executives and senior managers who may have founded their own business or who work for growing private, ASX listed companies or government businesses. Its purpose is to provide access to specialist advisers and information that addresses the often-complex issues affecting their personal prosperity.
Stratus Financial Group and its advisers are Authorised Representatives of Fortnum Private Wealth ABN 54 139 889 535 AFSL 357306. This advice is general and does not take into account your objectives, financial situation or needs. You should not act on it without first obtaining professional financial advice specific to your circumstances.
Please note: For advice and services relating to this matter that are not offered under the Fortnum Private Wealth AFSL, in accordance with our collaborative advice model, when required, such matters are referred to appropriately qualified professionals.
