Workers are being slugged with tax bills after receiving the federal government’s COVID-19 crisis payments last financial year.
The payments were introduced to help people survive the crippling lockdowns that left hundreds of thousands without work and with little prospect of finding replacement jobs before restrictions eased.
Recipients said the temporary Coronavirus Supplement, which effectively doubled the nation’s unemployment benefit, enabled them to buy basic essentials such as school supplies and medicine.
But it didn’t last long.
The nation’s unemployment benefit is back to being the second-lowest in the OECD – and the low-income workers who received the emergency supplement have been penalised for taking on additional work and hit with huge tax bills.
Sting in the tail
The New Daily has heard from income support recipients who were shocked to find out they owed the tax office between $900 and $2500 after filing their returns for 2020-21 over the past month.
And it’s all because the Coronavirus Supplement was introduced as a taxable payment – a feature the government has scrapped in its latest round of COVID support.
The Morrison government told people at the time the payment was taxable.
But advocates and recipients of the payment argue this was not clearly communicated. (And there’s another part to this that we’ll get to later.)
As a result, workers who spoke to The New Daily are being forced onto payment plans amid rising living costs and a new spate of coronavirus restrictions up and down the east coast.
Tax bills of up to $2500
Mark and Tara, parents of three from Bendigo, Victoria expected a $1000 refund when they lodged their 2020-21 tax returns, but were instead handed a $2500 bill despite having tax withheld during the year.
Their accountant said Mark, a casual healthcare worker studying nursing, would be forced to pay additional tax after receiving the Coronavirus Supplement through his Austudy support, which was not taxed throughout the year.
“It wasn’t clear to us at all that it was a taxable payment,” Tara told TND.
The family’s income was about $60,000 last year, with Mark juggling full-time study, night shifts at work and caring responsibilities at home.
“We usually get a decent tax return at this time of year, so that I can do things like put new tyres on the car and get it serviced,” Tara explained.
“He never usually gets enough from Centrelink to affect our tax much.”
The family will now be forced onto a payment plan, a burden that will weigh on their budget for months as living costs rise.
And their rent is also about to be hiked by $50 a month from August.
“Harvey Norman got to keep $22 million and said, ‘Whoops I made a profit’, while we’re expected to pay all this money back,” Mark said.
“Every dollar I give back is a dollar we can’t put on our plate.”
Accountant Lisa Greig said many people had been caught out by the tax rules behind the Morrison government’s COVID-19 crisis payments.
“People are really getting slugged,” Ms Greig said.
“Any money you get, always assume it’s tax-assessable.”
Australian Taxation Office assistant commissioner Tim Loh said the ATO had also become aware of the issue as returns had flowed in.
“We’re here to help,” Mr Loh said.
“Don’t bury your head in the sand. We can’t help if we don’t know.”
So, how did this all happen?
These payments were considered taxable income and not linked to employment like JobKeeper, which meant pay-as-you-go withholding tax wasn’t automatically applied.
In other words, unlike with a fortnightly pay cheque where your employer automatically deducts tax from your salary, these payments were paid in full and then recipients were responsible for tallying up all the tax they owed and paying it back at the end of year.
As a result, many people are being hit with surprise tax bills after accepting emergency government payments during Australia’s worst recession in generations last year.
Ms Greig estimates those who failed to set up manual tax deductions on the Coronavirus Supplement will owe between $1000 and $2000 to the tax office.
“The only option people have got is to go on a payment plan,” she said.
“It’s basically government Afterpay.”
Ms Greig said Services Australia deem the payments taxable because it has implications for family tax benefit payments and other schemes.
But she said the government could feasibly create an automated tax deduction.
Better off not working
Eve Geyer worked as a casual car cleaner last year and received the Coronavirus Supplement.
She tried to set up manual deductions after being hit with a tax bill in 2019-20 but said she had no luck.
“It would say that it all worked and then nothing came out [of] the payment,” Ms Geyer told The New Daily.
“I gave up and started keeping track of what I’d owe.”
Although Ms Geyer expected a bill of about $300, the ATO said she owed $900 for 2020-21 because the Coronavirus Supplement had pushed up her income and increased the amount of Medicare levy she is required to pay.
“Usually I’m $5000 to $6000 below the [Medicare] threshold,” she said.
“I would have been better off just taking four weeks off work. I would have made more money overall.”
Government: You were warned
Services Australia warned supplement recipients to request deductions manually on their crisis payments, but many had not been pushed over the tax-free threshold in years – if ever – and were caught off guard.
Those who don’t work can access offsets to wipe their tax bills, but Antipoverty Centre spokesperson Kristin O’Connell said virtually all of the 25 per cent of income support recipients who do paid work were pushed over the $18,200 tax-free threshold after receiving the Coronavirus Supplement.
The payments were worth up to $6950 in 2020-21 for JobSeeker recipients.
That meant those eligible for the maximum amount received $22,162 over the year when including the base JobSeeker rate, while those who carried out paid work were paid lower amounts during the year.
“We’re even seeing people who found a very, very small amount of paid work – [which] probably made very little difference to their life – being clicked over [the tax-free threshold],” Ms O’Connell told The New Daily.
She said advocates warned the government last April the tax assessments would hurt recipients and accused Services Australia of running a “totally inadequate” communications campaign about it.
A spokesperson for Social Services Minister Anne Ruston rejected that allegation, saying the tax status of the supplements was “clearly communicated”.
“Generous offsets within our tax system mean income support recipients will not pay income tax unless they earn additional income through employment,” the spokesperson said.
The Department of Social Services said it told people about the taxation of payments through its website and in social media posts, including videos on Facebook.
But while more than one million people received the Coronavirus Supplement, one Facebook video the department referred The New Daily to had been viewed only 29,000 times as of August 3.
Another video from Services Australia had only 69,000 views.