This article discusses who is responsible for tax adjustments arising from caretaker CPI overpayment tax issues when salary calculation errors are repaid.
Question: CPI was incorrectly calculated from 2011-2022, resulting in an overpayment to the caretaker. If the caretaker pays back the overpayment, who is responsible for the tax paid on the amount?
Our body corporate management company recently reviewed the CPI calculation for the on-site caretaker (contractor) salary increases from 2011-2022 and noticed a discrepancy. The body corporate management company’s accounting department incorrectly calculated the CPI. Therefore, the caretaker was overpaid during 2011-2022 period.
The body corporate asked the caretaker to repay the overpayment. The caretaker is asking for a tax adjustment for the error. Is the body corporate or the body corporate management company responsible for the tax adjustment payment?
Answer: If a mistake has been made it should be corrected.
This one is a bit messy, and how it has come about is relevant, but in very broad terms:-
- The contract is the contract, so whatever should have been paid is what should have been – so if a mistake has been made, it should be corrected.
- On the caretaking side, if the caretaker has paid tax on income received and it now has to be refunded, I don’t see why they wouldn’t be able to get an adjustment on their next tax return on that (but bear in mind, I am not an accountant and they should get their own accounting advice). If that refund will come from the ATO, I don’t see why the body corporate would have to pay it.
This post appears in Strata News #680.
Frank Higginson Redchip Strata Law E: FrankH@redchip.com.au P: 07 3193 0500