Backdated lump sum ACC payments to be taxed more fairly
Previously, backdated lump sum ACC payments received by clients were taxed in the year of receipt at the client’s marginal tax rate which meant that the lump sum payment often moved the client into a higher tax bracket. Now, multi-year backdated lump sum payments will be taxed separately from other income received by the client in the same tax year and these lump sum payments will be taxed at the client’s average tax rate, calculated over the past four years before receipt of payment.
The backdated lump sum payments that relate to more than one year are for weekly compensation, attendant care, childcare and home help. They do not include lump sum payments for permanent injury compensation.
The legislation for this amendment was passed in the Taxation (Annual Rates for 2023-24, Multinational Tax, and Remedial Matters) Act 2024.
Christine is a Senior Legal Editor in the Legal Analytical team in New Zealand. She has two Bachelors degrees - Social Sciences and Law, two Masters degrees - Management Studies and Labour Relations and Social Work, and a Postgraduate Diploma in Counselling. She has worked at Thomson Reuters for 12 years and before that she worked as a Probation Officer for 10 years.