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Re: Negative Annual Leave Balance Upon Termination

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We have an employee who resigned right after his LWOP. His last payment was in 2020, now came in 2021, he resigned. No payment was made to him for 2020-2021 FY but upon calculating his final pay, we identified that he has a negative annual leave balance which makes him overpaid.

 

Since no payments made to him for this FY, would his overpayment (less than $500) be reflected in his payment summary? I know that overpayment details should not be included on the employee's payment summary but what should be the case here?

 

Here's the employee's question:

 

Since I was overpaid annual leave shouldn't I paid tax for the salary (that's overpaid) in the last financial year, but if it's not reflected as a negative amount this year, doesn't that mean that I essentially pay tax for something that I didn't earn (since it's overpaid and I will return the amount as the gross pay)? An example would be I earn $5 gross and paid $1 tax ($4 net) last year, but this year I need to return $5, so I'm left with a negative amount from paying the tax. I hope that makes sense. How is this then reflected in the current financial year for tax purposes? 

 

Can you please advise what we need to do about this situation?

 

Thank you.

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ATO Community Support

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Hi @Payrollofficer

 

It depends on if the employee was entitled to the money when it was received.

 

If they were entitled, such as an "annual leave in advance" scheme, and are now not entitled due to later events (such as ending employment), the employer must amend the payment summary. The client then must repay the amount. After repaying the amount, they must amend the tax return it was included on.

 

If they were not entitled, such as an incorrect calculation of leave entitlements, the employer must amend the payment summary. The client can request an amendment before or after repaying the amount, it doesn't matter. However, amendment time limits apply - if they amend more than 2 years after the notice of assessment is issued, they'll have to object to the time limit and submit their amendment.

 

You can read about repayment of overpaid amounts (for the employer's side) and amend a return for repayment of income (for the employee) on our website.

1 REPLY 1

Most helpful response

ATO Community Support

Replies 0

Hi @Payrollofficer

 

It depends on if the employee was entitled to the money when it was received.

 

If they were entitled, such as an "annual leave in advance" scheme, and are now not entitled due to later events (such as ending employment), the employer must amend the payment summary. The client then must repay the amount. After repaying the amount, they must amend the tax return it was included on.

 

If they were not entitled, such as an incorrect calculation of leave entitlements, the employer must amend the payment summary. The client can request an amendment before or after repaying the amount, it doesn't matter. However, amendment time limits apply - if they amend more than 2 years after the notice of assessment is issued, they'll have to object to the time limit and submit their amendment.

 

You can read about repayment of overpaid amounts (for the employer's side) and amend a return for repayment of income (for the employee) on our website.