Thinking about a fresh start with a new job?
Many Australians consider career changes, especially around the New Year. But before you hand in your notice, it’s crucial to understand the tax implications of switching roles.
Leaving a job can trigger unexpected tax consequences, particularly concerning your unused leave.
Are you aware of these potential tax traps?
This blog will guide you through the key tax considerations to ensure your job transition is financially smooth.
1. Tax On Unused Leave
When you leave a job, you’re often paid for any annual leave or long service leave you haven’t used. This payment, while welcome, isn’t taxed like your regular salary.
The tax rate applied to these lump-sum payments differs and depends on a couple of key things:
- Why you’re leaving: Whether it’s resignation, redundancy, or termination, the reason for your departure affects the tax treatment.
- Type of unused leave: Different types of leave, like annual leave versus long service leave, are taxed differently.
Payments for unused annual leave and long service leave are taxed at a lower rate than your usual income. These payments are usually labelled on your income statement as ‘lump sum A’ or ‘lump sum B’.
It’s important to note that even if you lost your job due to COVID-19 or were temporarily stood down, these rules still apply, although specific circumstances might have had slight variations during the pandemic period.
2. Claiming The Tax-Free Threshold In Your New Job
When you start a new job, you’ll be asked to fill out a Tax File Number Declaration form. This is where you decide whether to claim the tax-free threshold. In Australia, the tax-free threshold means you don’t pay tax on the first $18,200 of your yearly income.
If you claim the tax-free threshold in your new job, less tax will be taken out of each pay. However, you can only claim this threshold from one employer at a time. If you have multiple jobs, you should generally claim it from the job where you earn the most.
If you’re changing jobs and starting a new one soon after leaving the old one, ensure you correctly claim (or don’t claim) the tax-free threshold to avoid issues when you do your income tax filing.
3. Hidden Costs Of A Job Change - Travel And Relocation
Beyond income tax, changing jobs can bring other financial considerations, especially if it involves a new location or different working arrangements.
Travel Expenses
Think about your daily commute to your new job. Will it take longer? “Time is money,” as the saying goes, and a longer commute can impact your finances in several ways:
- Increased travel costs: More petrol, tolls, or public transport fares can add up quickly. Parking in city centres can also be very expensive.
- Car expenses: Longer commutes mean more wear and tear on your car, leading to higher servicing and depreciation costs.
If your new job requires you to use your car for work duties (beyond just commuting), remember that some car expenses might be tax-deductible. Keep detailed records, like a logbook, to claim these deductions when you file your income tax.
Commuting And Relocation Costs
If your new job requires relocating, consider the financial impact of additional travel expenses, including petrol, tolls, and public transport costs.
Some of these costs may be deductible under specific conditions.
| Expense Type | Tax Deductible? |
|---|---|
| Petrol and tolls | Only if you use your car for work-related duties, not for commuting. |
| Public transport costs | Generally not deductible unless directly related to work travel. |
| Relocation expenses | May be deductible if moving for work and the employer does not reimburse costs. |
Public Transport Costs
If you plan to use public transport for your new job, factor in these costs too. Australian public transport can be expensive, and weekly or monthly fares can become a significant expense.
Research the public transport options and costs in your new work location to accurately assess your overall financial situation.
4. Working From Home Considerations
Working remotely gives flexibility, but it does have certain tax issues. If your new employment is either entirely remote or hybrid, it might be wise to make deductions on home office expenses, such as the following:
- Home office: Running costs, which include electricity, internet, and phone expenses related to your work.
- Deprecation of home office equipment: Computers, office furniture, and other equipment utilised for work.
In order to take these deductions, you must be the owner of a dedicated office space at home and keep accurate records of your expenses. The ATO has very specific guidelines concerning what may or may not be claimed, so it’s worth taking a look at their guidelines or consulting a tax accountant.
Need Expert Tax Guidance While Changing Jobs?
Changing jobs could impact your tax situation in ways that you may not anticipate. At KPG Taxation, we ensure the smooth transition and keep you in the entitlement to all deductions, refunds, and financial opportunities. Our experienced tax accountants armed with the required knowledge render expert advice that helps transition smoothly and keep more of what you’ve worked for. Book a consultation and let us take care of this, so you can focus on the next big step in your career!
