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Edited version of your private ruling
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Ruling
Subject: Income - repayment
Question
Are you entitled to reduce your income by the amount you were overpaid and required to repay?
Answer
Yes
This ruling applies for the following period
Year ended 30 June 2012
The scheme commences on
1 July 2011
Relevant facts and circumstances
You were employed.
You received wages from your employer in error.
You were contacted by your employer by letter to advise that you had been overpaid wages and to request repayment of those overpaid wages.
Your employer took legal action to recover the overpaid wages and you were ordered to repay the amount in monthly instalments.
You have commenced making the monthly repayments.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 6-5
Reasons for decision
Section 6-5 of the Income Tax Assessment Act 1997 states that assessable income includes income according to ordinary concepts, which would include amounts paid as salary or wages.
Taxation Determination 2008/9 identifies that amounts mistakenly paid as salary or wages to employees, to which they are not beneficially entitled, but are obliged to repay, are not derived as income according to ordinary concepts. Accordingly, such mistakenly paid amounts are not assessable income.
Where a taxpayer is required to repay an amount which has been included as assessable income in a prior financial year, the taxpayer can seek an amendment for the year in which the income was originally included to reduce the amount of the assessable income.
To reduce the assessable income, a determination needs to be made as to whether or not the taxpayer was entitled to the payment when they received it.
If the taxpayer was never entitled to receive the payment, they never had a beneficial entitlement to the income and thus did not derive the income. There is no requirement that the debt be repaid before amending the assessment.
In your case, you received wage payments from your employer in error.
You were not beneficially entitled to these wage payments and you are required to repay the amount overpaid.
The overpayment of wages would therefore not be considered income according to ordinary concepts and as such would not be assessable income.
You are able to request an amendment to reduce your assessable income for the financial year ended 30 June 2012 by the overpaid wages amount.
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