Tax bungle by government could impact workers if ATO chases money

The Australian Tax Office (ATO) could seek to recover more than a decade's worth of unpaid redundancy taxes due to an administrative error by the Tasmanian government.

The Community and Public Sector Union (CPSU) reported last Friday that the state government had made a voluntary disclosure to the ATO after discovering it had been incorrectly classifying its voluntary redundancy payouts for tax purposes.

The redundancy payouts had been classified as "genuine redundancies", meaning they were tax-free up to a limit and then concessionally taxed, but according to the ATO, genuine redundancies are not voluntary.

The state government has now conceded that its many voluntary redundancies should have been classified as employment termination payments, which are usually concessionally taxed up to a certain limit.

This means the workers should have paid more tax on their redundancies.

It's been able to sort out the current round of redundancies, covering the tax for those who have already been paid out so that people get what they expected.

But it estimates the incorrect practice has been in place since Labor was in government under premier Lara Giddings, potentially even further back than 2011.

That era was also marked by significant job cuts, many in the form of voluntary redundancies.

The ATO now has to work out if it wants to recover the money it's owed, and if it does, the government must figure out if Tasmanians will get hit with surprise tax bills or if it will cover the cost.

Labor workplace relations spokesperson Ella Haddad said it was worrying to consider how far back it goes and how many people are involved.

"It means that public servants who took redundancies up to a decade or possibly more ago could be hit with a tax bill that they weren't expecting and never saw coming," she said.

"There would be potentially thousands of people who have left under these same redundancies over the last decade or more, and the government needs to at least give some clarity to those people about what's going to happen.

She said she felt for workers who were finding out that the redundancy they took years ago could be subject to a historic tax debt.

"They would've moved on, they would have spent the money, they would have made decisions for their livelihoods and their families based on having taken that redundancy," Ms Haddad said.

On its website, DPAC said that no action is required from former employees "at this stage".

"Further information will be provided as advice becomes available, including any contact with former employees as needed."

The ABC understands the government is working with the ATO to address the historic debts, in the context that they occurred in good faith and were self-reported.