Accountant advice pretty please 🤪

[VictorineTheCatLover]

I came home today to cheque for a large sum of money from CBA. Seems we were one of those that were seemingly overcharged on not needed insurance and excess interest on the homeloan product we had with them 10+ years ago. Anyway they have paid this amount of money.

My question is...how will this be treated income wise? Will it be classed as taxable so need to be counted in our tax returns? If so can we not bank it until next financial year and have it assessed in the 21/22 year?

Or is it like lotto winnings and tax free

I tell you...my gast was flabbered when DH showed me the cheque lol

[MintyBiscuit]

Was there a letter with it? I would assume it’s not taxed as income because you would’ve paid the original premiums and interest out of post tax income, so it being taxed again wouldn’t seem to be right. But that’s an assumption, I’d check with the bank 

[VictorineTheCatLover]

4 minutes ago, MintyBiscuit said:

Was there a letter with it? I would assume it’s not taxed as income because you would’ve paid the original premiums and interest out of post tax income, so it being taxed again wouldn’t seem to be right. But that’s an assumption, I’d check with the bank 

Yes there was a letter and DH rang the bank to check it wasn't a scam. It didn't mention anything other than "we have overcharged you and trying to make it right" type language.

[Sugarplum Poobah]

Why would it be income when it's a refund of an overpayment? You presumably paid tax on the money originally before you overpaid the bank?

ETA I'm not an accountant, but it would never have occurred to me that this would ever be considered income

Edited June 18, 2021 by Sugarplum Poobah

[blackcat20]

It's just a refund and you would have paid tax on it when you earned it.

[Winterbabies]

Actually it can be quite complicated and have tax implications for some people, for example if the interest paid was in regards to an investment that generated income, that was then tax deductible. The refund will now change what may have been claimed. 

If just straight refund for something you personally paid for and did not tax deduct, then all good. 

Best seek to seek advice from an/your accountant. Most letters from banks would include this that advice in the letter and it isn’t for no reason, it really can be ridiculously complicated 

With the amount of remediation events occurring it is likely many people will receive refunds at some point (yay!) but some thought into the impacts is required. 

[Mose]

If it is just a refund of personal expenses (interest on your home loan for place of residence, personal insurances) and you didn't deduct the original expenses from your tax return in previous years, that should be fine.  It is literally just the bank saying they charged you too much in the past and returning it to you.  There would be no tax impact, because essentially you spent post tax dollars on the original amount, and it turned out you should have spent less of your own post tax money. (That is, the ATO already took their cut on the money you used).

If, however, you deducted any of the expenses from your taxable income in previous years, you should probably seek more specific advice.

However, these letters and cheques have been flowing for a few years now (across the population) as a result of the royal commission, and I have yet to hear of the ATO taking action to try to get the amounts included in anyone's personal income, and in my professional position if that was happening I more than likely would have heard about it.  No guarantee they won't in the future, but for now it really doesn't seem to be on their radar.

[Bornagirl]

9 hours ago, Winterbabies said:

Actually it can be quite complicated and have tax implications for some people, for example if the interest paid was in regards to an investment that generated income, that was then tax deductible. The refund will now change what may have been claimed. 

If just straight refund for something you personally paid for and did not tax deduct, then all good. 

Best seek to seek advice from an/your accountant. Most letters from banks would include this that advice in the letter and it isn’t for no reason, it really can be ridiculously complicated 

With the amount of remediation events occurring it is likely many people will receive refunds at some point (yay!) but some thought into the impacts is required. 

Agreed.   My mother died six years ago, my MIL three years ago.  We've received three cheques between them for less than $100 each, which is such a palaver to sort. Half of me wants to rip them up, the other half deprive the banks of the amounts the unconscionably charged.

One of them was for underpayment of interest on a term deposit (taxable in theory), the other was an overcharge of insurance (not taxable).

[Rosie28]

It will depend- straight refund and it won’t be taxable, but if it’s a refund for something that generated an income you’ll need to speak to an accountant. 

[VictorineTheCatLover]

No definitely no income derived. Was homeloan for PPR

[Lesley225]

It's like if you have an insurance policy on an investment property and  you receive a payout.  The money received would be taxable as the cost of the poilicy was deductible.

If the loan was for a personal (non income producing asset) then it's tax free.