Tax Not Withheld Correctly from Wages - Will ATO Apply a General Interest Charge?

My work payroll forgot to tax me properly.

I have no issue with returning or not spending the money (eg., plopping it in an HISA).

They have suggested it is easiest if I just do nothing and settle it at tax time.. I mean, OK.. but.. will the ATO charge me a General Interest Charge because the tax wasn't withheld?

I was under-taxed by about $4k.

Comments

  • +10 votes

    no just pay it at tax time

  • +7 votes

    You got a 4k interest free loan. Nice!

  •  

    ATO doesn't start charging interest on tax unless you really refuse to pay. It's a penalty for those who won't pay rather than something that just happens for those who can't\didn't..

  • +1 vote

    After you lodge your tax return each year, they'll either give you a refund or send you a bill. The bill will have a due date on it. If you don't pay what you owe them by that due date, they'll start applying that GIC.

    If you want to have that "interest free loan" for longer, lodge your tax return on or just before the deadline.

  • +1 vote

    Assuming you're talking it happened during this financial year, you could ask your employer to withhold the extra tax out of future pay. They'll need to fill in an upward withholding form with the ATO. But you won't get charged interest on it so long as you file and pay your tax on time if they don't do this.

    If it happened last financial year, just expect a big tax bill. Again, they won't charge you.

  • +2 votes

    have no issue with returning or not spending the money (eg., plopping it in an HISA).

    definitely this.
    its a gain for you, as long as you have the financial sensibility to not spend it prior to tax time. There is no penalty
    (would be amazing if you could actively choose to not pay PAYG tax throughout the year and just hand it all over at tax time :) )

  •  

    As per others, should be fine.

    Assuming it is an error made by the company, if anyone's gonna cop it, it will be the company… but… once again, it's unlikely to have any negative impact. Enjoy your bit of interest that you gain from it :) and don't forget to report the interest :p

  • +1 vote

    My work payroll forgot to tax me properly.

    They didn't forget. They failed to do their job properly. Huge difference.

    •  

      Exactly.

      Unless the employee doesn't notify of a change of circumstances (e.g. 2nd job, so now skips the tax-free threshold) then there's no excuse to stuff this up.

      Xero has a single page per employee with integrated TFN lodgement to the ATO. PAYG is automatically calculated per payrun according to gross wages. If your employer is big enough for salary sacrifice/FBT etc, then they are aware of the tax implications and (should be) competent enough to setup each correctly.

  •  

    You'll be fine.

    Put it in a high earning interest account (if there was such a thing) or an offset and make it work for you in the mean time.

  •  

    OK, thanks all. That sees like a pretty solid consensus.

    The reason I ask is because I have been signed up to an ATO PAYG installment plan and I have to prepay a bunch of tax on my investment earnings.. I actually expect my investment earnings will be pretty low this year so I am planning on contributing very little to that.. but one thing they warn you of is that if you under-pay your installments then they might charge you a GIC.

    •  

      might charge. Doesn't mean they will, its just a stick they wave until you are really delinquent. You can always ask to readjust the payment plan time or amount to generate a new plan, had to do that before, wasn't really a huge issue. I think you could even do that through the automated service.

  • +2 votes

    You don't owe tax until the end of the tax year. Eg you could lose your job half way through the year and end up with only half your normal taxable income overall so you'd be in a lower tax bracket. Or you might get a bonus or overtime and get more tax taken out as the amount is as if you got paid that every pay (but you'd get the excess tax back in your return). You don't owe tax at each pay as there's no guarantee you'll continue getting that exact amount every pay.

    •  

      yeh, that's definitely true in terms of the reconcilliation of what I owe/am owed.

      But the tax office collects money throughout the year as tax withheld. i am (was) sus that they'll wonder why I am underpaying tax my this much in this particular pay packet.

      •  

        There was one year where my income tax was well above what had taken from my salary. I think this was because I had a large amount of savings for a house deposit earning decent interest. (this was a while ago). After my tax return I got a bill for unpaid taxes which I paid.

        What happened the following year was that the ATO started sending me quarterly tax bills based on the predicted shortfall. Of course that year I bought the property and my income went back to normal so I ended up overpaying tax until my tax return.

  • +1 vote

    Does this same principle apply if your employer has underpaid tax and you have not been paid enough?

    Suppose the employee is meant to be paid $30 an hour but they deduct (but did not forward to the ATO) but you only receive $22 an hour. Would the amount on your employment contract help to determine who should foot the bill?

    • +1 vote

      I don't follow you. If your employer is withholding tax and not giving it to the ATO then I think that's a big no-no.

  • +1 vote

    No. This is the purpose of the tax return. Everyone in Australia either hasn't had enough tax paid on their behalf or has paid too much. So the govt gets you to fill in the tax return to see how much tax you should have paid. Then the govt will refund you if you have paid too much, or tell you to pay if you haven't paid enough. If you don't pay the bill by the due date they might start charging you GIC.

  •  

    There will be no penalty or interest charges