Backpay Income from 5 Years Ago Being Taxed with My Current Income

yoquierotaco on 13/10/2022 - 11:23

Hi,
So 5 years ago I was basically making peanuts for money. I was part-time and I wasn't even being taxed as I was under the threshold. I now work at a new company and at a higher salary. My old company got audited and they found out I was not correctly paid. So they have now back pay me. However, this has been taxed at my current salary even though I technically made it years ago when I made barely anything. Is there anything I can do? It is possible to amend my previous tax that year to include this salary and not be taxed in the next tax year for this backpay? It's not that much money but it's the principle of it all.

I will be speaking with an accountant about my tax and will bring this up, but just seeing what I should be expecting when I do go have a chat. Would be nice if there were any OzB Tax Accounts that can chime in or someone that have had similar scenario.

Financial

Comments

  • Settero on 13/10/2022 - 11:37
    +15

    Not an accountant but Tax is applied when you receive the money not earned it.

    • djkelly69 on 13/10/2022 - 11:47

      Tax is applied when you receive the money not earned it.

      Assuming you are a normal person using 'cash' accounting. It is different for businesses or others using 'accruals' accounting.

  • Typical16-bitEnjoyer on 13/10/2022 - 11:39

    It's not that much money

    You will need to disclose this if you want anything close to an accurate answer.

    • tonsta on 13/10/2022 - 14:34

      is that your Donald?

      • Typical16-bitEnjoyer on 13/10/2022 - 20:34
        -1

        No, just common sense. If OP was under the threshold back then, guessing the backpay is only like $500-1000. Getting (and paying) an accountant to finesse the backpay defeats the purpose, especially when OP will probably get it back in their next return.

        • yoquierotaco on 14/10/2022 - 07:58

          Yea it only like 2k. In terms of tax it’s not much. But like I said it’s the principle of it. I’m paying my tax accountant to do my tax anyways so just adding this on if it wasn’t too much trouble and if its possible (and of course if it makes sense financially like you said)

  • [Deactivated] on 13/10/2022 - 11:42
    +1

    That's top tier tax every poor worker who was underpaid by their ex-employers have been paying just because ATO assumes(no idea why) that you are earning that huge sum every week.

  • SmiTTy on 13/10/2022 - 11:45
    +1

    It's a shame.. But at least you're getting paid (for what you deserved)

    Maybe do a concessional Contribution to your super. This might reduce your tax bill. You can look back at last 5 years if u haven't used the cap

    I know it's not a great solution, but looking on the bright side.. Although rightfully yours, I'm guessing this is money you probably weren't expecting

    (not tax advice, dyor… Etc etc)

  • Seraphin7 on 13/10/2022 - 11:59
    +3

    Not an accountant, but the challenge will be in what period the employer has determined (no doubt with accompanying legal/tax advice, etc.) the payment is relevant to.

    They will still need to provide you with a payment summary for taxation purposes. If that payment summary is this financial year, then (all else being equal) you will have to pay tax at your current rate. If it is an amended payment summary for the relevant prior year, then the tax return for that year will be amended and you then pay tax at those rates.

    • GordonD on 13/10/2022 - 17:08

      Isn't there a 2 year limit on amending tax returns? After that its too late.

  • bemybubble on 13/10/2022 - 12:04
    +5

    Depending on the amount you will get an offset to counter the tax impost for back pay.

    You can read more about it here

    https://www.ato.gov.au/Individuals/Income-and-deductions/Off…

    Unfortunately you can’t go back and amend as taxes work on a cash basis

  • jv on 13/10/2022 - 12:11
    +1

    defer it for 12 months until the promised tax cuts kick in.

    • avoidfullprice on 13/10/2022 - 12:38
      +4

      Of course jv meant 21 months given that cut kicks in from July 2024

      • jv on 13/10/2022 - 12:46

        😲

      • yoquierotaco on 14/10/2022 - 08:11

        😂

  • Porker on 13/10/2022 - 12:38

    What principle are you trying to uphold?

    You received the money this year, not at the earlier time. Had you received it then, then the tax considerations would have been made at that time.

    I personally think you'd be in a better position in trying to reduce your taxable income for the current year than try fight the notion that the new income should be taxed at a lower/earlier rate.

    Eg. Additional contribution to Superfund? If you have investments, then consider more deductibles against them? etc etc

    • EightImmortals on 13/10/2022 - 15:44
      +1

      The principle is that if they were paid the proper amount the time their taxation contribution might well have been lower than having a lump sum tacked onto their current wage.

  • Ghost47 on 13/10/2022 - 12:50

    What company is it?

  • wei13 on 13/10/2022 - 13:19
    +2

    Check your payment summary and see your accountant at tax time. A genuine backpay of wages would often be separately classed as a lump sum E payment. If so, and subject to multiple other factors and calculations, a lump sum in arrears offset may be available at tax lodgement time, which will help reduce the amount of tax the backpay is subject to.

  • Tleyx on 13/10/2022 - 14:44

    This happened to me too i would gave paid less if it was paid correctly earlier but its cash accounting so theres not much you can do

  • yoquierotaco on 14/10/2022 - 08:01

    Thanks for all the comments and links everyone :) will definitely have a chat with my accountant.

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