Income Tax and Overpayments

Income Tax

Pensions

Some pension payments form part of the pensioner’s taxable income. These are:

• Age Pension;
• Disability Support Pension paid to a man over 65 and a woman over age pension age;
• Widow Pension;
• Wife Pension – if over age pension age or if husband over 65;
• Carer Payment if carer or person being cared for is of age pension age; and
• Parenting Payment.
• Most supplements are not included in taxable income, along with:
• Disability Support Pension if under age pension age;
• Wife Pension if both under age pension age;
• Carer Payment if both under age pension age;
• Crisis Payment; and
• Double Orphan Pension.

Although some pension payments are included in taxable income, a special income tax rebate for pensioners ensures that people whose only income comes from social security pensions will pay no income tax.

More information is available from the Australian Taxation Office (ATO). Again, advice from a lawyer or accountant should be obtained on this complex area if any problems arise.

Allowances

Special Benefit, Sickness Allowance, Youth Allowance and Newstart Allowance paid to a person and their spouse form part of their taxable income.

FTB(A) and (B) and Rent Assistance are not included in taxable income.

A special income tax rebate for beneficiaries reduces the chance of a beneficiary paying income tax unless they have income in addition to the benefit. More information is available from the ATO. Advice from a lawyer or accountant should be obtained on this complex area, if any problems arise.

Overpayments

Chapter 5 of the SSA

Where a person is paid a pension, benefit or allowance to which they are not entitled, a debt may be due to the Commonwealth.

A 10% penalty may be added to debts resulting from a refusal or failure to provide information in relation to employment income, or knowing or reckless provision of false or misleading information in relation to employment income if the person doesn’t have a reasonable excuse.

If the person is still receiving a payment, a debt can be recovered by withholding part of the payment. The Commonwealth Government can also recover an overpayment by civil court proceedings. Other means of recovery include:

• garnishee (commonly from wages or bank accounts);
• repayment by instalments; and
• recovery from a third party.

In some circumstances, Centrelink may write off or waive recovery of the debt. Centrelink may only waive recovery of a debt in certain defined circumstances (ss1237–1237AB) including where:

• the debt has been caused 100% by an error made by Centrelink, and the person received the payment in good faith;
• the person with the debt has special circumstances, and the debt was not caused by a person knowingly giving false information;
• a person is prosecuted and sent to jail for the debt, and the judge or magistrate actually says that they are going to jail for longer because they can’t or won’t pay the debt; and
• the debt is less than $200.

Similarly, write off criteria are outlined in section 1236. Any person who is faced with a demand for recovery of debt should immediately seek independent advice (from a community legal centre, Tasmanian Legal Aid or a solicitor.

Similar, though not identical, provisions relating to Family Assistance overpayments can be found in Part 4 of the A New Tax System (Family Assistance) (Administration) Act 1999 (Cth).

A welfare recipient who has a debt raised against them can seek waiver of those debts pursuant to Social Security (Waiver of Debts – Disaster) Specification 2011 if adversely affected by the flooding disasters in late 2010 to early 2011. Section 5(1) of the SSA defines ‘Adversely Affected Persons’ to include the following:

• The person or affected family member being seriously injured or killed.
• The person experiencing psychological trauma.
• Their principle place of residence being destroyed, sustaining major damage or experiencing utility failures.
• The person being unable to return to their principle place of residence for at least 24-hours.

This relates to only a portion of the debt that arose during the disaster period between 1 November 2010 until 19 March 2011.

Recent Changes about Notification Obligations

Section 66A of the SSA Act requires the recipient to inform Centrelink if an event or change of circumstances occurs that ‘might affect the payment of their social security payment or the person’s qualification for the concession card’. While this section will have most relevance to criminal prosecutions, it may also have implications for overpayments. The requirement has been maderetrospective to 20 March 2000.