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  • Repayment of income

    If you have to repay an amount that you included as part of your assessable income in an earlier income year, you can apply for an amendment of that year's income.

    The only exception is where you had received income as a benefit or regularly paid compensation then have to repay that income because you receive a lump sum compensation payment or a lump sum payment for damages for a wrong or injury suffered in your occupation.

    The process for amending your tax return depends on whether or not you were entitled to the payment when you received it.

    Entitled to the income

    You are entitled to income if you are correctly paid an amount that is due to you. You may have to amend your tax return if you later have to repay that amount. For example, you receive a payment on the condition that you will remain with an employer for a specified period but you don't meet the condition and you have to repay the employer.

    You need to meet all of these conditions before you can request an amendment to your tax return:

    • you must have repaid the amount
    • you cannot claim any deduction for the repayment in any year
    • the payment is not from a lump sum settlement.

    Example

    Charlotte was a member of the Australian Defence Force (ADF). She was offered $50,000 (a retention bonus) to sign on for another five years of service. Under the terms of the contract, she was required to repay the bonus on a pro rata basis if she failed to serve for five years. She signed up for the retention bonus and included the $50,000 as part of her assessable income in that year's tax return.

    Three years into the contract she resigned from the ADF, and was required to repay two-fifths of the retention bonus. Once Charlotte had repaid the $20,000 she was able to amend her assessment for the income year in which she declared the $50,000. In her amendment she requested that her income be decreased by $20,000 for that year.

    End of example

    Not entitled to the income

    You are not entitled to income if you are paid an amount due to an error or mistake. For example:

    • The government mistakenly overpays your taxable pension, allowance or payment.
    • Your employer mistakenly overpays salary.

    In this case the amount does not have to be repaid before amending your tax return.

    Your employer or payer should give you either an amended payment summary or a letter correcting the payment summary that they had previously issued. You should provide a copy of this with any amendment or objection request.

    Example

    Hannah receives a regular social security payment. When she made an incorrect income declaration she was mistakenly paid $825. Hannah must repay this amount. She was not entitled to the $825, so her tax return can be amended to reduce her assessable income.

    End of example
    Last modified: 27 Oct 2016QC 50384