Tax On Back Pay

Press, Volume CVII, Issue 31520, 7 November 1967, Page 7

Tax On Back Pay

Tax liability on retrospective pay rises should be spread if the recipient wishes, according to the Taxation Review Committee in its report tabled in Parliament last week by the Minister of Finance, Mr Muldoon. The full recommendation is that where the taxpayer so elects, lump sum payments of arrears of remuneration arising from increases granted by the Court of Arbitration, the Government Service Tribunal or similar bodies, or the renegotiation of awards or the operation of any wage and salary fixing machinery, should be spread, for income tax assessment purposes, over the period to which they relate or over the period from date of receipt to April 1 in the earlier of the two years immediately preceding the year of receipt, whichever period is the shorter.

The report says that retrospective payments arising through wage and salary fixing machinery do not generally cover a long period. More than 18 months to two years would be unusual. The committee is satisfied there is a case in equity for granting taxpayers a right to elect to have a retrospective payment of this nature spread back for tax purposes, and that justice will be substantially achieved if the necessary statutory provisions cover the back pay relating to a period not exceeding two years.