What to do when unexpected money hits your bank account


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Imagine waking up to find that your bank balance has a couple more zeros on the end of it than it did the day before.

That's exactly what happened to Melbourne woman Thevamanogari Manivel in May last year who, according to documents from an ongoing case in the Victorian Supreme Court, was the recipient of a mistaken transfer from cryptocurrency trading platform, Crypto.com, worth a tidy $10,474,143.

Apparently, the error occurred when an employee from the platform attempted to transfer a $100 refund to Manivel, but instead, entered an eight-digit account number into the payment field.

what happens when money that isn't yours arrives in your bank account

Unfortunately for Crypto.com, it didn't discover the mistake for seven months, during which time Manivel had allegedly used some of the funds to purchase a $1.35 million property.

The company has since taken the matter to court, and in a recent judgment Manivel was ordered to sell the property in order to repay Crypto.com part of the outstanding money ($1.35 million) plus interest and costs.

Another story, which also happens to have come out of Victoria, is that of Dan Saunders. In short, back in 2011 Saunders discovered a loophole with his bank which allowed him to top up his savings account with his credit account and then withdraw a seemingly endless stream of cash.

Over the course of five months, Saunders used the loophole to spend roughly $1.6 million of his bank's money before turning himself him. According to Saunders, he received a one-year jail sentence after which he was released on community corrections order.

Clearly things didn't work out well in the end for either of these banking error recipients, so in the rare - though not impossible - case of a mistaken transfer, what course of action should you take?

Honesty is the best policy

While the temptation to keep mum may be strong, the Australian Financial Complaints Authority (AFCA) recommends that anyone who receives money that isn't theirs gets in contact with their bank as soon as they notice the error.

After all, if it's a case where someone has mistakenly transferred money to the wrong bank account, there's a good chance that the bank will freeze the money and then attempt to refund it.

"If you want to do the right thing, and I'm sure most people would want to, you could alert the bank to the transaction - though you aren't obliged to," says AFCA's lead ombudsman for small business, Suanne Russell.

"Depending on the sum, you may have genuinely not noticed the transaction and spent the money. In which case, talk to your bank about what to do - especially if the return of the money will cause financial difficulty.

"You shouldn't spend the money, as it is likely the person who mistakenly sent it will ask the bank for the transaction to be reversed and the funds returned."

But what about any interest you happen to make on that money?

"Generally, the money is not in an account long enough to earn interest," says Russell. "However, technically, any interest would not be yours."

What if your employer overpays you?

A more likely scenario than a multinational company transferring you millions of dollars is your own employer making a mistake with your salary. In fact, chief executive of the Australian Payroll Association, Tracy Angwin, says that overpayments are far more common than most people would imagine, and just as common as underpayments.

"You often hear about underpayments because people normally know what they should be getting paid. But when it's an overpayment, especially if it's not a material overpayment, employees trust that the payroll department know what they're doing.

"Small overpayments will generally go unnoticed, because the employee won't recognise it, and neither will the employer. Big ones do get noticed though, but it may take a while."

So, what should you do if your pay hits your bank account looking larger than it should? According to Angwin, it's worth reporting it as soon as you can, though employers should also provide flexibility when it comes to how the money is repaid.

"The employee, if they're honest, will let the payroll office know. That would be the right thing to do, but they're not obliged to give the money back straightaway," she says.

"If a company does decide that they want the money back they need to communicate with the employee and let them know what the value of the overpayment is, and go into an arrangement with them. Sometimes going through the process of recouping the funds can be just as expensive as the funds themselves though."

The tax implications

In the case of receiving an overpayment, the headache may be larger than just having to repay the money though. As director of tax communications at H&R Block, Mark Chapman explains, any tax owed will depend on whether or not the company chooses to let the overpayment slide.

"If the amount is written off, the employer needs to pay fringe benefits tax on the amount written off, but if the debt is not written off, the tax implications fall on the individual who received the repayment," he says.

"If the individual needs to repay the amount in the same financial year, then they need to repay the total amount of the overpayment less the PAYG tax already deducted. For example, if the employee was overpaid by $1000 and $200 of that was withheld in PAYG tax, the employee must repay $800.

"However, if the over-payment isn't spotted in the same year that it was paid but instead a later year, the employee is required to pay the entire amount including any tax withheld."

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Tom Watson is a senior journalist at Money magazine, and one of the hosts of the Friends With Money podcast. He's previously worked as a journalist covering everything from property and consumer banking to financial technology. Tom has a Bachelor of Communication (Journalism) from the University of Technology, Sydney.