C22/1996 OVERPAID TAX

DATE OF ISSUE: 22 MARCH 1996

OVERPAID TAX

INTRODUCTION

The purpose of this instruction is to introduce new procedures for the waiver of 'overpaid' tax. This instruction should be read in conjunction with Departmental Instruction (DI) B23/95 which outlines current Departmental policy on this matter.

BACKGROUND

2.On 17 November 1995 the Minister for Finance published instructions for action to be taken by all Commonwealth Departments in respect of 'overpaid' tax.

3.In brief, 'overpaid tax' occurs when a person who had a tax liability has been overpaid service pension which he/she subsequently repays. Because their income (ie service pension) has reduced, the amount of tax which they paid for the corresponding financial year needs to be adjusted. However, the Income Tax Assessment Act (ITAA) precludes reassessment of tax liability after a period of 4 years. This generates an inequity for the debtor - ie although he/she has fully refunded the overpaid amount, because the overpayment period falls outside the 4 year rule, any tax liability paid on that income cannot be adjusted.

NEW POLICY

4.To remedy this inequity, the Minister for Finance has requested that Commonwealth Departments take the following action for overpayments which fall outside the 4 year rule:

for overpayments not yet recovered - the amount of the debt equivalent to any tax 'overpaid' by the debtor, that is attributable to the 4 year rule, is to be waived;

for overpayments already recovered - a 'refund' is to be made to the person of an amount equal to the tax, that is attributable to the 4 year rule, that had been paid by them on the overpayment under the act of grace provisions (s34A of the Audit Act 1901 refers).

CURRENT PROCEDURES

5.Under current procedures as outlined in DI B23/95, the debtor is provided with:

details of the overpaid amount per financial year ; plus
progressive amended income statements upon request - ie a new income statement is provided once the overpaid amount corresponding to a financial year has been fully refunded.

6.Where the debtor is precluded from requesting an adjustment of tax liability because of the 4 year rule, the Department will consider waiving an amount of the debt equivalent to the 'overpaid tax' amount that is attributable to the 4 year rule.

NEW PROCEDURES

7.As per current procedures, the initial overpayment letter * will detail the amount overpaid in each financial year - this will be known as the gross overpaid amount. At the same time the debtor will be advised that he/she must request the Australian Taxation Office (ATO) to calculate the amount of tax paid in each financial year that should not have been paid - ie the overpaid tax amount.

8.The debtor will then provide this information to DVA, who will calculate the

net overpaid amount as follows:

GROSS OVERPAID AMOUNT - OVERPAID TAX

equals

NET OVERPAID AMOUNT

9.Once the net overpaid amount has been repaid in full, the overpaid tax amount, as verified by the ATO, will be waived in accordance with the direction from the Minister for Finance.

Example

A veteran has been overpaid service pension during the financial year 1989/90 totalling $4,000. Based on this reduced income, his tax liability for that year has been reduced by $500. Therefore, once he has refunded $3,500 to DVA, $500 of total debt can be waived

$4,000 (gross o/p amount) - $500 (o/p tax) = $3,500 (net o/p amount)

*Note - the initial overpayment letter has been modified to reflect these changes. A sample is at Attachment A.

10.Cases where ATO are unable to calculate the 'overpaid' tax component should be referred to Policy Administration and Advice in National Office so that negotiations can be undertaken with the Department of Finance and the ATO to determine how the amount of overpaid tax is to be established in these cases.

CONTACT OFFICERS

11.Any queries relating to this matter should be directed to Freda Widawski on telephone (02) 2137487.

W.R.MAXWELL

DIVISION HEAD

COMPENSATION

Attachment A

INITIAL OVERPAYMENT LETTER

Dear <n>>

I am writing to advise you that the service pension paid to you has been overpaid.

Service pensions are income/aset tested payments and recipients are required to notify this department within a prescribed period of any increase in income or assets and of any changes to personal circumstances. The prescribed period is currently 21 days. [Optional to be used for O/P from pre 1991 (but prior to July 1991), the prescribed period was 14 days)].

(optional)

In addition recipients of rent assistance are required to notify of any changes to the amount of rent paid or if they commence paying rent to a government authority.

OVERPAYMENT BACKGROUND

On (Free text - include circumstances of how and why O/P occurred. Need sufficient detail so that veteran understands why he/she was overpaid).

As you [did not advise this Department of (insert the event which lead to the overpayment) within the prescribed period] or [provided incorrect information in relation to (insert the event which lead to the overpayment)] a Delegate of the Repatriation Commission has made a decision to reduce the rate of/cancel your service pension from (insert date).

This means that your service pension has been overpaid.

The overpayment totalling (insert amount of overpayment) commenced on (insert date) (being the payday after the event) and continued until (insert date) (being the day before the pension was correctly assessed/cancelled).

The period of the overpayment occurred over a number of financial years. For your information, the amount overpaid in each financial year is as follows:

(insert financial year)(insert amount)

(insert total overpayment amount)

HOW TO REPAY

Please refund the amount of (insert the amount of overpayment) to the Receiver/Collector of Public Monies at the above address within 21 days of this advice. If payment is made by mail, please cross your cheques or money order "Not Negotiable". If you pay in person at this office, payment may be made in cash.

(Optional)

Please return the enclosed card with your payment.

ADMINISTRATIVE CHARGE

If, for any reason, your overpayment is not fully refunded within 3 months of you receiving this letter, the amount outstanding will be increased by an administrative charge. This is a once only charge which comprises an amount of $15.00 plus 10% of the balance outstanding at that time. The maximum administrative charge is $515.00. In your case the amount of the charge would be, at most (insert the amount).

YOUR RIGHT OF REVIEW

If you disagree with the income or asset details forming the basis of the assessment or the period during which the overpayment occurred, you have the right to apply for a review of the Delegate's decision to reduce/cancel your service pension from (insert date).

Any application for review should:

(a) be in writing and

(b) be lodged within 3 months of the date of this letter and

There is no right of review in relation to the recovery of an overpayment.

If you apply for a review, your debt must still be repaid. If your application for review is successful, any monies refunded will be returned to you.

TAXATION INFORMATION

This refund of overpaid service pension will reduce the amount of taxable service pension received by you during the financial year concerned. If you were liable to pay income tax for the financial year/s in which the overpayment occurred, you may apply for an amended statement of benefit for that financial year, after the repayment is made.

If this applies to you, you should attach a request for an amended statement of service pension to your repayment, when you pay the Receiver/Collector of Public Monies. The Department will provide you with an amended statement, which you may the forward to the Australian Taxation Office, together with a request for an amended assessment in respect of tax paid on the income refunded.

Overpayments more than four years old

Please note that if the period of overpayment involved financial years more than four (4) years ago, the Australian Taxation Office has no authority to reimburse "overpaid" tax for financial years which are more than 4 years ago. However, if this is the case, this Department will give consideration to the waiver of an amount equivalent to the "overpaid" tax amount for those financial years.

Waiver may only be granted in line with special guidelines approved by the Repatriation Commission. The condition for this waiver is:

the Department has recovered all of the original value of the debt from the debtor, except for an amount which the Australian Taxation Office has advised constitutes overpaid tax which cannot be refunded by the debtor.

If your overpayment (or part of your overpayment), occurred more than 4 years ago, you should approach the Australian Taxation Office with details of the amount you have been overpaid in each financial year (as listed on the previous page) and request them to calculate for you the amount of "overpaid tax" for each financial year (ie the amount of tax that you paid that you should not have paid based on your reduced income).

Once you have this information you should provide it to this Department together with a written request for consideration of waiver of the amount of "overpaid" tax for the financial years that occurred more than 4 years ago. This means that the amount that you will be required to refund to this Department will be reduced by the amount of that "overpaid" tax. You should contact the Australian Taxation Office for a refund of "overpaid" tax for the more recent financial years.

Please note, consideration for a waiver of the "overpaid" tax amount cannot be given until such time as the remainder of the debt has been fully repaid.

OBLIGATIONS

I would also like to remind you of your obligations under Section 54 of the Veterans' Entitlements Act 1986. You must notify this Department within twenty one (21) days if the following occur:

variations in your income and assets details
changes in your domestic situation
change of address

as they may affect the rate of pension you are entitled to receive.

If there is any reason why you are unable to repay your debt within 21 days, or if you wish to discuss the matter further, please contact me on the above number as soon as possible.

Your sincerely

(signatory)

for DC

(signatory)

Senior Recovery Officer

Source URL: https://clik.dva.gov.au/compensation-and-support-reference-library/departmental-instructions/1996/c221996-overpaid-tax