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Taxation of a benefit payment made for a back year

W Edmonds made this Official Information request to Ministry of Social Development

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From: W Edmonds

Dear Ministry of Social Development,

The following information is requested for research purposes.

Can I please have information on the tax treatment that MSD applies to a benefit payment for a back year? (e.g. when remitting that tax to Inland Revenue). Example as follows:

Bob is on a benefit and receives $240 p/w or just under $12,500 a year. MSD calls Bob and advises him they miscalculated his entitlement from 4 years ago and he is owed $4,000 extra. How do MSD determine what tax to remit from this payment?

I am ok with the specific example not being answered if it requires you to construct a response (you can if you want though). I would be interested in the relevant legislation that applies (i.e. specific section) and any guidance provided to staff when dealing with these payments. i.e. do you look back to the year in which Bob should have received the payment (say 2014, and see he only received $10k instead of $14k in that year, and then apply tax at the marginal rate of 10.5% - or do you tax Bob in the year that he received the payment - 2018 - to which he would then be in a higher tax threshold. Do you use the rules for the taxation of lump sum payments or what?

Hope that makes sense.

Yours faithfully,

WE

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From: OIA_Requests (MSD)
Ministry of Social Development

Tēnā koe W Edmonds

Thank you for your email received 19 December 2018, under the Official Information Act 1982. Your request has been forwarded to the appropriate officials at National office to respond. You may expect a response to be sent to you as soon as possible.

Please note that the period commencing 25 December 2018 and ending 15 January 2019 does not count as 'working days' as defined in section 2 of the Official Information Act 1982. Due to this holiday, a decision about your response would be due on 8 February 2019.

Nā mātou noa, nā

Official and Parliamentary Information team   |  Ministerial and Executive Services
Ministry of Social Development

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Manaaki Tangata, Manaaki Whānau

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