also referred to as a lump sum payment in arrears tax offset
The delayed income tax offset is to compensate for the tax spike that occurs when a lump sum income amount received within the year is made up of amounts which have accrued in, or are attributable to, earlier tax year(s).
When prior-year income is received, the whole of the amount is required to be included in the year it is received. But the delayed income offset reduces the tax to that applying when re-attributing the lump sum to the earlier years.
This earlier years’ tax adjustment is estimated by using the actual tax rates for the previous 2 years, and an average of those 2 years’ rates for any years prior to that.
Calculating the offset amount is therefore a matter of comparing the tax amounts calculated before and after the inclusion of the lump sums in the attributable years.
See also: Employer lump sum payments 2017
This page was last modified 2017-12-06