Robodebt victims could face second round of pain – tax bills on refunds

Jun 18, 2020

Robodebt victims could be set for a second round of pain, an MP has warned, this time at the hands of the tax office amid concerns some of the hundreds of thousands of refunds promised by the federal government will trigger future tax debts.

For a week the Australian Taxation Office refused to answer questions from Guardian Australia about whether it will treat as taxable income the $720m worth of refunds that the government has said it will begin paying from July.

The independent MP Andrew Wilkie, a longtime critic of the Coalition’s scandal-plagued debt recovery scheme, said he had been contacted by tax accountants raising the prospect that refunds could pose further problems for victims of the scheme.

He said the government should rule out treating the refunds as taxable income or any other adverse impacts if victims need to amend their tax returns from past years.

“If someone gets a refund next financial year, that mustn’t be treated as taxable income that they have to pay tax on,” he said. “That would just be rubbing salt into the wound.”

Guardian Australia approached the tax office last week asking if the refunds would be treated as taxable income and it is understood the ATO and Services Australia officials were left scrambling to form a position.

For a week the ATO repeatedly declined to provide an official response. Late on Wednesday night a spokeswoman told Guardian Australia: “Services Australia will provide more information about the refund process over the coming weeks.

“Confirmation of the tax treatment, if any, will be made prior to refunds being issued.”

The Services Australia website states that the agency will not assess the refunds as income to determine welfare payments, as occurs with employment income.

It is understood some of the hundreds of thousands of robodebt recipients will have filed amendments to their tax returns after agreeing to pay back a debt. That is because they had paid tax on that Centrelink income, but as an overpayment debt it was no longer considered taxable by the ATO.

In some cases, filing amended returns would have allowed recipients to receive some relief from the tax office because they may have been overtaxed in the years that Centrelink claimed they were also overpaid.

The provision of refunds and the “zeroing” of those could mean the Centrelink payments received at the time will once again be considered taxable.

A tax expert, Adrian Raftery, said some victims who had earned over the tax-free threshold could end up with a tax debt after amending their past years’ returns.

“It’s not a good scenario,” he said. “Hopefully it won’t impact too many, but I’m certain there will be a pocket that will have a tax liability.”

In a stunning backdown last month, the government promised to repay 373,000 people whose debts were raised using the unlawful “income averaging” of annual ATO pay data.

Some of the 470,000 refunds will be in excess of $10,000 and are likely relate to unlawful debts spread across several years.

The Guardian has revealed that the total value of those unlawful debts is closer to $1.5bn, while a class action brought by Gordon Legal is seeking interest and compensation.

On Tuesday lawyers for the class action flagged a possible claim of misfeasance in public office which could see government ministers forced to front court over the scandal.

The class action is also demanding that all people hit with debts under the program receive refunds, even if they subsequently provided payslips to Centrelink which were used to substantiate a debt. That would increase the number of victims to about 600,000, and about $2bn in overall debts.

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