Hi ATO community, i certainly hope I can articulate this without confusion.
Last financial year 23/24 due to work place injury I was receiving income from Return to Work SA aka WorkCover. After a mutual agreement to finalise the matter between myself the employer and now WorkCover insurer a reconciliation was agreed to and my employment officially ended in mid June 2024. During this time my claim to WorkCover was rejected and then subsequently reinstated upon appeal. I agreed to accept a settlement on the injury. Approximately 8 weeks back payment was agreed. Im No longer employed with the company. In August this financial year 24/25 my back payment would be paid. The insurer had me fill a new tax declaration form in which I opted for the tax free threshold as I'm currently unemployed. The lump sum payment was made income tax withheld of $5000. From a tax perspective the Insurance Company has done their due diligence and calculated and withheld the income tax on this lumped sum payment as per the guidelines set out by the ATO.
After a recent phone call to the ATO advice line I was discussing the scenario and need clarification. The representative was great but I didn't feel confident that we both were reading from the same page
This is a once off lump sum back payment from money earned last financial year paid this financial year. It is well under the tax free threshold. If $18,200. The matter is settled I received net payment last week and the insurance company is withholding $5000 in tax. I have requested they release the funds to me rather than hold on to them.
They have now requested in writing from the ATO permission to do this.
Very strange situation, I feel like they are aware of the situation but are making it difficult. They are a huge insurance company and I'm fairly sure they could ask the ATO permission themselves.
If anyone can help it would be most appreciated. Unfortunately legal matters cost a lot of money and now the ATO needs an Insurance Company to withhold $5000 from an employee under the TFT.
Much appreciated
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