Tax refund from error

Press, 7 December 1988, Page 6

Tax refund from error

PA Wellington Hundreds of former public servants may get a refund in tax paid on severance or early retirement money, because their employers wrongly interpreted an Inland Revenue Department ruling.

The error’s biggest impact is expected to be on former Forest Service and State Coal Mines workers, but also affects former employees of Government departments. It could involve Stateowned enterprises whose pay clerks adopted practices in line with the State Services Commission.

The problem has arisen because of an S.S.C. interpretation of an Inland Revenue Department ruling.

The S.S.C. believes large amounts of money may be involved in individual cases, but the I.R.D. thinks they would be quite small.

Neither can say how many people are involved, nor how much the Government may have to repay in total.

The situation has come to light after a former public servant asked the I.R.D. to check deductions made by his employer.

“He thought they were wrong, and inquired why that ruling was being applied,” Mr Dennis Young, director of the I.R.D.’s technical section said. The issue concerns the inclusion of payments for long service leave and leave not taken in the taxable sums paid. Mr Young said the I.R.D. checked and found out that the S.S.C. had applied a wrong interpretation to a ruling issued for the 1987-88 tax year. “We think the old ruling was misunderstood for some reason which we were not able to track down, largely because the employing authority had no letter from us telling them how to make the calculations.”

Mr Young said the I.R.D. had no record of being asked for such guidance.

“People apply the law as they understand it, until someone finds out they are doing it wrongly,” he said.

The S.S.C.’s ruling was adopted by Government departments and used in calculating payments, particularly for those taking early retirement or voluntary severance.