Almost 300 injured New Zealanders were stung by huge tax bills last year after receiving hefty back-payments from ACC - an issue which has been repeatedly brought to the Government's attention for more than a decade.

Hundreds of Kiwis receive back-payments from ACC each year either because they lodged a late claim, because they won a case for compensation which ACC had previously refused, there were re-calculations or because complex claims required a lot of investigation to determine cover.

In the last financial year there were 296 back-dated weekly compensation payments of $50,000 or more, most of which covered a period of at least a year.

In many cases these people were paid out tens or even hundreds of thousands of owed to them in a lump sum pushing their revenue for the year into the highest tax bracket.


For many of those injured New Zealanders, that equated to a tax bill thousands of dollar higher than what they would have been paying had they received their compensation each week since the accident as most ACC clients did.

One man, who shared his story anonymously, has just received a back-payment of more than $400,000 after a nine year battle with ACC which started when he fell off a mountain bike.

The man had not been able to go back to his job since and had been fighting for weekly compensation. But tax rules meant that, where he would have been taxed about $71,000 had he been paid out each week, he was now expecting to lose more than $150,000 to Inland Revenue.

After calling Inland Revenue to try to resolve the problem, he was issued with a special tax code which meant the money would be treated as a second taxable job at a flat rate of 33 per cent across the whole amount.

Despite the sizable payout he expected he would only be left with about $150,000 once tax and Work and Income repayments were taken out.

"The IRD are treating late payments in the same way as holiday bonuses or tips. It's just wrong," he said.

"How would anyone else feel if their boss didn't pay them for years and then gave most of it to the taxman?

"I am pissed off. I have written to the Prime Minister and Minister of Revenue asking that the tax code be amended retrospectively as a matter of urgency. Thousands of our most vulnerable are being kicked in the guts by the IRD after they've endured prolonged torture from ACC."


An ACC spokesman acknowledged many clients were dissatisfied with the way their back-dated weekly compensation payment was taxed but said the organisation had no discretion about the tax rate, nor the discretion to split payment calculations if the payments covered more than one tax year because it had to follow the rules set by the Income Tax Act.

The country's top ACC lawyers agreed the current situation was unfair and needed to change.

Warren Forster of Forster and Associates said it had been a "huge gaping issue" for at least a decade.

In 2010 the ombudsman made note of the problem in his report and noted he waited with interest to see the result of ACC raising the issue with the Minister for ACC.

Since then nothing had been done, Forster said.

"It's just so unfair. Imagine if you've been cut off, you make it through the dispute resolution process, and you have to go through all this stuff for, in some cases, 10 years, and then you're subject to extra tax. If ACC paid it at the time you wouldn't have paid anywhere near as much tax," he said.

"This is exactly why we need a Personal Injury Commissioner. Someone needs to hold ACC and the Government into account on these longstanding systemic issues. No one else is doing it."

Phil Schmidt of Schmidt and Peart Law and John Miller of John Miller Law both agreed it was a major issue.

Schmidt said the fair way to do it would be to proportion the tax payments over the years they were for, he said.

Most people who were back-paid would be paid for at least two years as it was rare for the issue to be sorted out in a shorter time.

"For people in the middle income, it hits them the hardest. They are short changed quite a lot, he said.

ACC Minister Iain Lees-Galloway said he was aware of the issue but it was one which needed to be dealt with by Revenue Minister Stuart Nash.

Nash said he was also aware of the issue however he had not received any briefings on the matter.

Inland Revenue had not identified it as a priority for legislative change but people were welcome to email the Minister with concerns and proposals.