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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of your written advice

Authorisation Number: 1013078368850

Date of advice: 30 August 2016

Ruling

Subject: PAYG Withholding

Question 1

Is the organisation required to withhold an amount from weekly compensation payments (except for certain specified insurance policies)?

Answer

Yes.

Question 2

If the answer to Question 1 is yes, is the organisation required to issue PAYG payment summaries to claimants in receipt of weekly compensation payments?

Answer

Yes.

Question 3

Where a claimant's obligation to repay an overpayment is waived by the organisation, is the forgiven amount a 'withholding payment' under section 10-5 of Schedule 1 of the Taxation Administration Act 1953 (Sch 1 TAA)?

Answer

No.

Question 4

If the answer to Question 3 is yes, is the organisation required to issue an amended PAYG payment summary at the time the overpayment is forgiven to include the amount as income?

Answer

Not applicable.

Question 5

Where a claimant is overpaid an amount in relation to non-weekly benefits for certain expenses and the claimant's obligation to repay the amount is subsequently waived, is the overpayment considered to be a 'withholding payment' under section 10-5 Sch 1 TAA?

Answer

No

This ruling applies for the following periods:

Year ended 30 June 2017

Year ended 30 June 2018

Year ended 30 June 2019

Year ended 30 June 2020

Year ended 30 June 2021

The scheme commences on:

1 June 2016

Relevant facts and circumstances

The private ruling application forms part of, and is to be read with, this description.

The organisation operates as an independent commercial enterprise and is self-funded.

Since its formation, the organisation has been a provider of insurance.

The organisation derives the majority of its income from premiums received from certain entities and returns from investment activities.

Weekly Compensation

The type of compensation generally payable includes:

This private ruling application refers specifically to the weekly compensation payments made to an injured worker to compensate them for the loss of salary and wages.

Claimant Overpayments

A claimant debt arises where a claimant has been overpaid.

Where there is a claimant overpayment which is required to be repaid, the organisation issues a letter and makes contact with the claimant advising of how and why they were overpaid. Should the claimant fail to repay a debt within 14 days set by the letter, the overpayment debt is created to the claimant's financial account.

A relevant debt may be waived or written off as a bad debt by the organisation.

Relevant legislative provisions

Section 10-5 of Schedule 1 to the Taxation Administration Act 1953

Section 12-120 of Schedule 1 to the Taxation Administration Act 1953

Section 16-155 of Schedule 1 to the Taxation Administration Act 1953

Reasons for decision

Question 1

Is the organisation required to withhold an amount from weekly compensation payments (except for certain specified insurance policies)?

Yes. Weekly compensation payments made by the organisation are considered to be 'withholding payments' as mentioned in section 10-5 Sch 1 TAA, being 'compensation, sickness or accident payments' under section 12-120 Sch 1 TAA. They are payments calculated at a periodical rate and are made to compensate the claimant for salary and wages lost during their incapacity for work.

Section 12-120 Sch 1 TAA states:

We agree with your submission that the weekly compensation payments made by the organisation are made because of claimants' incapacity for work, are calculated at a periodical rate and are not payments made under an insurance policy to the policy owner. Therefore, the organisation is required to withhold an amount from weekly compensation payments. (except for certain specified insurance policies).

Question 2

Is the organisation required to issue PAYG payment summaries to claimants in receipt of weekly compensation payments?

Yes. A payer is required to give a recipient a payment summary within 14 days of the end of the financial year, if during the year, the payer made one or more withholding payments to the recipient (Section 16-155(1) Sch 1 TAA).

The Commissioner of Taxation has discretion under section 16-180 Sch 1 TAA to exempt an entity from the payment summary obligation. However, we agree with your submission that this exemption does not apply to the organisation's circumstances.

Therefore, as outlined in section 16-155 Sch 1 TAA, the organisation is required to issue a PAYG payment summary to injured workers in receipt of weekly compensation payments within 14 days of the end of the financial year.

Note: Where you find a mistake with a payment amount and/or tax withheld amount after issuing a PAYG payment summary, an amended PAYG payment summary should be issued as soon as the mistake is identified.

Question 3

Where a claimant's obligation to repay an overpayment is waived by the organisation, is the forgiven amount a 'withholding payment' under section 10-5 Sch 1 TAA?"

No. You have stated that the amounts overpaid by the organisation to claimants are due to errors or mistakes. While the organisation is entitled to recover the overpayment from the claimant, the organisation sometimes waives or writes off these debts.

The waiving or writing off of a debt by the organisation is not a 'payment' made by the organisation, and therefore it cannot be a 'withholding payment' under section 10-5 Sch 1 TAA or a 'payment of compensation, or of sickness or accident pay' under section 12-120 Sch 1 TAA.

Question 4

If the answer to Question 3 is yes, is the organisation required to issue an amended PAYG payment summary at the time the overpayment is forgiven to include the amount as income?

Not applicable.

Question 5

Where a claimant is overpaid an amount in relation to non-weekly benefits for certain expenses and the claimant's obligation to repay the amount is subsequently waived, is the overpayment considered to be a "withholding payment"?

No. Non-weekly benefits for the expenses are not considered to be payments to which section 12-120 Sch 1 TAA applies, as they are not calculated at a periodical rate but are compensation for a particular expense the claimant has incurred. As such, the benefits also do not come within the broader category of 'withholding payments' as mentioned in section 10-5 Sch 1 TAA.

As noted above, the waiving or writing off of a debt by the organisation is not a 'payment' made by the organisation, and therefore it cannot be a 'withholding payment' under section 10-5 Sch 1 TAA or a 'payment of compensation, or of sickness or accident pay' under section 12-120 Sch 1 TAA.

Question 6

If the answer to Question 5 is yes, is the organisation required to issue an amended PAYG payment summary to include the overpayment as income?

Not applicable.

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