Financial illiteracy is quite high in Australia, Melbourne accountant Adam Jacobson says, which is why he tries to teach Aussies simple finance tips on social media.
A Melbourne-based accountant has urged Aussie workers to be aware of a superannuation “hack” when it comes to your annual leave. Not being aware of the loophole when leaving a job – as many people aren’t – will mean missing out on thousands of dollars.
Your annual leave is paid out when you resign from a role. And Adam Jacobson of Link Wealth Accounting says you would be “dumb” to not use up all your leave entitlements before you finish at a company.
Annual leave isn’t considered ‘qualifying earnings’ by the ATO, which means superannuation doesn’t need to be paid on it when it is paid out. “It’s a big trap people fall into,” Jacobson tells Yahoo Finance.
But there are ways around it.
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To put it into average numbers, if you earn a salary of $100,000 per year, your employer contributes 12 per cent as the compulsory guarantee rate into your super fund. So that equates to $12,000 per year in superannuation contributions.
This means if you have four weeks (20 days) of annual leave banked up, and leave your job without taking that time off, you’d be missing out on $923 in superannuation.
The way to get around losing out on this nearly $1,000 in superannuation when leaving a job is simple, Jacobson says.
You either need to cash out your leave with your employer while still in the role (if this is something they offer), as it would then require them to pay superannuation, or you choose to actually take the leave.
“It’s something that people don’t know of and so it’s one of those hacks, you could say, that when you find out about it, it’s like a little light bulb going off in your mind.”
But, as Jacobson points out, you have to cash out or take the leave prior to quitting your job or being terminated, which is sometimes out of your control.
‘Everyone looking to get the most out of their working time’
Highlighting the rule on social media, Jacobson says simple financial tidbits like this often resonate with people, which he thinks is likely due Australians becoming increasingly interested in their finances and changes that affect them as cost of living concerns continue.
“Right now, everyone’s feeling it a little bit, so I think that whenever there’s a way for someone to [save], it just resonates with everyone,” Jacobson says.
