Retention Bonus - Tax Implication if This Is Returned

bunkr on 31/03/2021 - 12:40
Last edited 31/03/2021 - 13:07

Hi OzB,

I have been offered a retention bonus, such that it gets paid immediately with the understanding that I must stay in the job for a specified period. There is also a contract in place such that I must return this money in its entirety if I leave before end of this specified period. This is fair enough and am mentally prepared that this money does not belong to me until end of the period. If I were to find a new job within this period, hopefully the pay at the new job will compensate for the loss of this bonus.

Now my question is regarding the tax implication of this bonus. This bonus is taxabale and I get paid a super on this bonus. So lets say I got $1000 of this bonus, they will deposit $95 in my super, and pay me $1000 less the applicable tax amount to me. Consider a theoretical tax of 25%, I will get $750 in hand.

Now my question is two fold:

  1. What happens if I were to leave the job. Would I have to replay entire amount including super ($1095) or just the pre-tax amount ($1000). How does it work?
  2. How does it get accounted for in tax terms. Lets say the I am asked to stick around for 12 months. I get paid now (current FY 2020-21), but leave the job in July 2021 and will repay the amount in at the same time - July 2021 (i.e., next FY). This bonus amount would already have been accounted for (in tax terms) by ATO for in the current FY, how do I show negative bonus next FY?
Financial

Comments

  • SF3 on 31/03/2021 - 12:46

    What did your workplace and your accountant say?

    • bunkr on 31/03/2021 - 12:51

      I have not asked an accountant. As for the company, not sure if I can ask them. It may look to them that I am looking foir a way out.

      I was hoping someone here can throw some light. And yes, I understand that the advise here is not financial advise and I must do my own due diligence before making a decision.

      • SF3 on 31/03/2021 - 12:58

        re: workplace.

        You could try, asking from the perspective that what if you have unplanned family commitments that causes you to leave the company (not join another company), so that you are aware of the implications, not to hint you plan to move somewhere else.

  • Gunther on 31/03/2021 - 12:52

    Super contributions usually only applies to the base salary, not bonus or overtime.

    • bunkr on 31/03/2021 - 12:59

      I have been told that super will be paid on this amount

    • trex on 31/03/2021 - 13:46
      +1

      Super is on ordinary time earnings. Bonus is deemed as ordinary time earnings.

  • Choc83 on 31/03/2021 - 12:53
    +2

    Depending on the size, they will take it out of your final pay. If you've got a stack of long service leave/annual leave that is due to get cashed out, then you might be able to cover it. It's more tricky if your final pay doesn't cover that dollar amount…they might come after you, or they might never bother, depends on the company.

  • onetwothreefour on 31/03/2021 - 13:05
    +2

    Why did they pay you upfront and not after the specified time?

  • CrowReally on 31/03/2021 - 13:23
    -1

    It's going to (entirely) depend on whatever the written agreement says. It's possible the piece of paper says "$1000 including super" which means the super number is actually already included in the $1,000, for instance. It might have specifics on what gets returned. Is it pro-rata'd? And so on.

    1. Assuming the piece of paper matches the scenario you've outlined, and you're getting $750 and they pay $95 into your super, you'd have to pay back $1,095 to them [that's the amount of cash they paid out]. I'd be incredibly surprised if their agreement with you was inadequately drafted and the $95 super they paid to you was "free" for you to keep.

    2. If you receive the bonus in your 2021 tax year, they will issue a payment summary for your entire year [which includes that bonus amount] and that goes on your tax return. If you quit in 2022 and repay the amount, you'd get a Amended 2021 payment summary from them [now $1,000 lower Gross wages and $250 lower PAYG] and you'd lodge an amended 2021 return for your 'new' 2021 amount. [At the same time I would tell the ATO that you've repaid the full $1,095 so that the $250 they collected is noted as being well and truly yours].

    • bunkr on 31/03/2021 - 13:34

      Thanks - thats very helpful. Yeah, it says "$1000 + superannuation contribution".

  • bobbified on 31/03/2021 - 16:50

    You'll have to pay back whatever they've specified as the total retention bonus, regardless of how it's split.

    But if it's been paid into Super, I'd tell them to take the amount back from Super and not from the amount you get in your pocket. It's obviously simpler for them to take it from you than get it back from the super fund.

    (Last year, I told my employer that they had overpaid $6,000 into my Super account 12 months prior and when I eventually found someone that would listen, they tried to claw it back from my regular pay. I told them to get stuffed! It took them another 12 months to work it out with the fund).

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