Treatment of the payment received
Scenario:
I had been receiving incorrect wages from the 2010 tax year to the 2015 tax year. I have made a settlement with my previous employer for $30,000 and this payment was received on July 8, 2016. I have retired and am currently receiving the carers pension as I am looking after my disabled wife. How should I treat the payment? Is it necessary to divide the payment across 2010 to 2015? Does the amount need to be included as a lump sum payment in the 16/17 year?
Explanation:
Lump-sum payments for wages in arrears may only be derived in the year of receipt and may therefore only be assessable in the income year the cash payment is received by the individual (ITAA 1997 s 6-5; Taxation Ruling TR 98/1, paragraph 42). Thus, the lump sum payment should be shown in the individual’s tax return for the 16/17 year. An averaging of the income over the previous years may not be possible since there is no provision in the tax law that allows for that. In addition, the employer also needs to withhold PAYG instalments from the making of the payment.