Edited version of private ruling

Authorisation Number: 1011779515437

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Ruling

Subject: Lump Sum in Arrears Offset

Question 1

Are you entitled to a lump sum in arrears tax offset in relation to your lump sum payment received?

Answer

Yes.

Question 2

Are you entitled to a lump sum in arrears tax offset of $xxx,xxx.xx?

Answer

Decline to rule.

Question 3

Can the rate of PAYG withholding be varied under section 15-15 of Schedule 1 of the Taxation Administration Act 1953 (TAA 1953) after the payment has been made and the withholding amount has been deducted?

Answer

No.

Question 4

If the rate cannot be varied, is there another mechanism by which you can receive a refund of some of the amount withheld before the end of the financial year?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 2011

The scheme commences on:

1 July 2010

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You received a payment for many years of back-pay of a pension.

The payer withheld $xxx,xxx from your back payment, paying you a net amount of $xxx,xxx.

The total amount of the back payment for prior year pension was $xxx,xxx.xx.

Apart from a small amount of interest, the back payment will be your only assessable income for the 2010-11 financial year.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 159ZRA

Taxation Administration Act 1953 Schedule 1 Section 15-15

Taxation Administration Act 1953 Schedule 1 Subsection 18-65(1)

Reasons for decision

Question 1

Individual taxpayers, who receive certain assessable lump sum payments containing an amount that accrued in earlier income years, may be entitled to a lump sum in arrears tax offset under section 159ZRA of the Income Tax Assessment Act 1936 (ITAA 1936). The tax offset is intended to overcome the problem of the lump sum attracting more tax in the year of receipt than would have been payable if the payment had been taxed in each of the years in which it accrued.

To be eligible for the tax offset, the amount of the eligible lump sum that accrued before the year of receipt must not be less than 10% of the 'normal taxable income' of the year of receipt.

Your pension is a type of income that is eligible for the tax offset. As the lump sum in arrears payment that you received is more than 10% of your 'normal taxable income' for the 2010-11 income year, you will be entitled to a lump sum in arrears tax offset.

Question 2

The amount of your lump sum in arrears tax offset for the current financial year cannot be calculated until after 30 June 2011 when your income tax return is lodged. This is because the calculation depends on the amount of any other assessable income declared and deductions claimed. Once the return is lodged the Tax Office will then calculate any lump sum in arrears tax offset entitlement.

Question 3

Subsection 15-15(1) of Schedule 1 of the TAA 1953 states that

The Commissioner may, for the purposes of meeting the special circumstances of a particular case or class of cases, vary the *amount required to be withheld by an entity from a *withholding payment….

The provision can only apply where the income amount has yet to be paid and the withholding amount has yet to be deducted.

In your case, your lump sum arrears payment has already been paid to you after an amount was withheld for tax.

Therefore, subsection 15-15(1) of Schedule 1 of the TAA 1953 is not applicable in your case.

Question 4

Payers are required to deduct withholding amounts in accordance with the applicable schedules provided by the Commissioner.

Under subsection 18-65(1) of Schedule 1 of the TAA 1953, a payer who deducts a withholding amount in error must make a refund to the payee.

In your case, there is no indication that the entity that paid the lump sum has not deducted the withholding payment in accordance with the applicable schedule.

Therefore, subsection 18-65(1) of Schedule 1 of the TAA 1953 does not apply in your case. There is no other mechanism by which you can receive a refund of some of the amount withheld before the end of the financial year