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Ripped off by 7-Eleven, worker's back pay treated 'unfairly' by tax man

Brisbane Times logo Brisbane Times 25/08/2019 Michael Evans

A 7-Eleven wage theft case has exposed an unfair tax slug for some workers who win back pay, leading an appeals tribunal to call for changes to the law.

The administrative appeals tribunal has acknowledged a worker ripped off by 7-Eleven who fought and won a $62,000 lump sum in back pay ended up paying more in tax than he would have had he not been ripped off.

But the tax office had applied the law correctly, the tribunal found, leaving the taxpayer out of pocket and the tribunal expressing sympathy over the “unfairness” and "unintended" consequences of the law.

a close up of a sign: 7-Eleven was the subject of a Herald and Age investigation into underpayment of employees. © Glenn Hunt 7-Eleven was the subject of a Herald and Age investigation into underpayment of employees. It urged politicians to consider changing the law because “this unfairness is likely to be repeated” in an environment of "continuing ‘wage theft’".

“The facts … focus attention on whether the Parliament should legislate for a provision which would allow the Commissioner of Taxation to exercise a discretion in favour of taxpayers where the taxation legislation operates in an anomalous or unintended manner, as it does here,” AAT senior member Paul Ehrlich, QC, wrote in a judgment.

After being ripped off by his bosses at 7-Eleven for years, the last thing Ratul Biswas expected when he secured $62,000 in back pay was to be treated unfairly again. But that’s what happened when Mr Biswas declared his years of back pay to the tax man only to find a levy imposed on him for years he wasn’t liable to pay.

Mr Biswas arrived in Australia in 2010 and became an Australian citizen in 2016. During that period he worked for a 7-Eleven franchise.

Like many of his co-workers he was grossly and unlawfully underpaid. Revelations in the Herald and Age of widespread underpayments to 7-Eleven staff led to inquiries by the Senate and Commonwealth agencies, with claims of underpaid workers assessed.

Mr Biswas’s relief at receiving a $62,000 back payment in 2017 would be short-lived.

The backpay boosted his taxable income that year to $119,000 and the tax office assessed the tax payable at $32,000 and a Medicare levy of $2400.

A few months later, Mr Biswas amended his return, seeking a tax rebate for the lump sum payment in line with rules that allow a rebate on lump sums for earnings which accrued in previous years. The rebate is designed to address the problem of more tax being payable in the year of receipt of the lump sum than would have been payable if the lump sum had been taxed in each of the years in which it accrued.

Mr Biswas qualified for the rebate and the tax office allowed it, but applied it only to his income tax, not the Medicare levy.

Mr Biswas objected, arguing that a “significant portion of the lump sum amount is related to the period … when I was exempt from paying Medicare levy.”

The tax office rejected his objection so Mr Biswas appealed to the AAT, arguing the levy was unfair.

In his judgment, Mr Ehrlich, QC, upheld that the law treated back pay differently. While eligible for the rebate on his income tax, he remained liable to pay the Medicare levy.

“Put simply, 2 per cent is 2 per cent whenever accrued,” Mr Ehrlich found, "notwithstanding the sympathy that the Tribunal has for Mr Biswas’ position.”

“As this case well demonstrates, unfairness can result where the taxpayer was, in fact, exempt from paying the Medicare levy in a year or years in which the lump sum in arrears accrued.

“Regrettably, an unfairness arises in those circumstances. Given public revelation of continuing ‘wage theft’, especially in the hospitality sector, this unfairness is likely to be repeated.

The tribunal ruled in the tax office's favour.

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