DATE OF ISSUE: 28 MARCH 1995
OVERPAID TAX
PURPOSE
The purpose of this Departmental Instruction is:
to clarify the policy relating to waiver of overpaid tax, and
to highlight the changes to the policy relating to the issue of amended income statements.
BACKGROUND
2.The need to clarify current policy arose out of a requirement for the department to advise clients of their right to request waiver of "overpaid tax", and the need to reduce their expectation that waiver will occur in all cases.
3."Overpaid tax" may occur when overpaid service pension has been recovered. Because income (ie service pension) has been reduced, the veteran may be eligible for a re-assessment of tax liability. However, the Australian Taxation Office (ATO) can only retrospectively review tax liability up to a period of four (4) years. This can result in a situation where a pensioner has refunded overpaid service pension but because the overpaid period falls outside the 4 year rule, is unable to apply to ATO for a refund although his/her actual income has reduced for that period.
CURRENT PROCEDURES
Initial Overpayment letter
4.Currently the initial overpayment letter advises the veteran of the amount of overpayment and the fact that if the overpayment extends over a number of years the pensioner can apply for a tax reimbursement going back 4 years, once the overpayment has been repaid. Beyond 4 years the veteran may apply to the Department to have the amount equal to the "overpaid tax" waived.
Amended Income Statements
5.Currently, an amended statement of income can only be provided when the whole overpayment has been repaid. This may be seen as disadvantaging the veteran, if recovery takes a number of years to be completed, i.e. finalisation of the overpayment recovery may lead to part of the overpayment being outside the 4 year period for requesting an ATO re-assessment.
Waiver of tax portion exceeding four years
6.DVA pensioners are advised in the initial overpayment letter that the ATO cannot reassess liability involving financial years more than 4 years prior to the date of the reassessment. This letter also advises the veteran that the Department will give consideration to the waiver of an amount equivalent to the overpaid tax amount which is not recoverable from ATO. The policy for the waiver of a debt is set out in the Overpayment Management manual. For easy reference, it is included in this instruction below:
the debt arose as a result of administrative error; and
the payment was received by the person in good faith; and
recovery would cause extreme hardship for the person(s); or
there are other extreme or unusual circumstances where it may be appropriate to waive recovery.
NEW PROCEDURES
Initial Overpayment letter
7.To ensure that the veteran has all the relevant information at his/her disposal both to obtain a tax reassessment where appropriate or to request waiver of unrecoverable overpaid tax, the initial overpayment letter has been amended as follows:
1.The letter now breaks the total overpaid amount into the financial years in which it occurred; and
2.includes details of waiver provisions. ( Attachment 1 ).
Amended Income Statement
8.To ensure that the veteran is given every opportunity to request a re-assessment of tax liability, amended income statements will be provided progressively - ie as that portion of the overpayment which refers to a financial year is repaid, an amended income statement will be available for that year.
example:Veteran has been overpaid service pension totalling $5,000 over the period 1992-95. The amount overpaid in each financial year is as follows:
1991/92$1,500
1992/92$2,500
1993/94$1,000
TOTAL$5,000
When the veteran has repaid $1,500 an amended statement for the financial year 1991/92 can be issued on request.
9.The Amended Income Statement letter has been updated to reflect above changes. ( Attachment 2 refers ) The amended statements will continue to be issued ONLY on request ie not automatically.
Waiver of tax portion exceeding four years
10.The grounds for waiver of tax portion exceeding 4 years are set out in paragraph 6 of this DI. They are the grounds under which a delegate of the Repatriation Commission may exercise his/her discretion to waive recovery of the overpaid tax amount. The initial letter has been changed to advise the veteran of these guidelines. ( Attachment 1 refers ).
CONTACT OFFICER
11.Should you have any further questions regarding this matter please contact Felicity Hugg on (06) 289 6446.
BILL MAXWELL
NATIONAL PROGRAM DIRECTOR
BENEFITS
Attachment 1
INITIAL OVERPAYMENT LETTER
Dear
I am writing to advise you that the service pension paid to you has been overpaid.
Service pensions are income/asset 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 financial year)(insert amount)
(insert financial year)(insert amount)
(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 cheque 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
(c) contain a full statement including the aspects of the Delegate's decision with which you disagree.
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 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 then forward to the Australian Taxation Office, together with a request for an amended assessment in respect of tax paid on the income refunded.
Please note that if the period of overpayment involved financial years more than four (4) years ago - Australian Taxation Office has no authority to reimburse "overpaid" tax. However, if this is the case, this Department will give consideration to the waiver of an amount equivalent to the "overpaid" tax amount.
Waiver may only be granted in line with special guidelines approved by the Repatriation Commission. The condition for waiver is:
the debt arose as a result of administrative error; and
the payment was received by the person in good faith; and
recovery would cause extreme hardship for the person(s); or
there are other extreme or unusual circumstances where it may be appropriate to waive recovery.
If you wish to have the "overpaid" tax amount considered for waiver you should:
make a request in writing;
include the reasons why you feel it should be waived; and
attach a statement from the Australian Taxation Office which shows the amount of overpaid tax that you have paid.
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.
Yours sincerely
(signatory)
for DC
OR
(signatory)
Senior Recovery Officer
Attachment 2
AMENDED INCOME STATEMENT
Dear
I refer to your recent part repayment of an overpayment of Service Pension. If you lodged returns during the relevant financial year, your tax liability may be affected and you may be eligible for a re-assessment.
The following are the details for the financial years concerned.
NAME:(Insert name)
GROUP NUMBER:(Insert group number)
FINANCIAL YEAR |
ORIGINAL AMOUNT |
OVERPAYMENT RECOVERED |
ADJUSTED AMOUNT |
I enclose one copy of this letter for you to send to the Australian Taxation Office (if you lodged returns in the above years) and another copy for your own records.
Yours sincerely
(signatory)