House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)

General outline and financial impact

Tax exemption for the Disaster Income Recovery Subsidy

Schedule 1 to this Bill amends the Income Tax Assessment Act 1997 to exempt from income tax the Disaster Income Recovery Subsidy paid to those affected by the floods that occurred in Australia on or after 29 November 2010 and those affected by Cyclone Yasi.

Date of effect : 10 January 2011.

Proposal announced : This measure was announced in:

•

the Prime Minister's Media Release of 10 January 2011 titled Income recovery subsidy assistance to help those affected by the floods ;

•

the Prime Minister's Media Release of 3 February 2011 titled Commonwealth assistance for Queenslanders impacted by Tropical Cyclone Yasi ; and

•

the Assistant Treasurer and Minister for Financial Services and Superannuation's Media Release No. 016 of 21 January 2011.

Financial impact : Nil.

Compliance cost impact : Nil.

Tax exemption for ex-gratia payments to New Zealand non-protected special category visa holders

Schedule 1 to this Bill also amends the Income Tax Assessment Act 1997 to exempt from income tax ex-gratia payments to New Zealand non-protected special category visa holders for a disaster that occurred in Australia during the 2010-11 financial year.

Date of effect : 31 January 2011.

Proposal announced : Not announced.

Financial impact : Nil.

Compliance cost impact : Nil.

Tax exemption for recovery grants for the 2010-11 floods and Cyclone Yasi

Schedule 2 to this Bill amends the Income Tax Assessment Act 1997 to provide an exemption from income tax for Category C Natural Disaster Relief and Recovery Arrangements grants paid to small businesses and primary producers, where the Category C grant relates to flooding that occurred in Australia on or after 29 November 2010 and those small businesses and primary producers affected by Cyclone Yasi.

Date of effect : This measure applies to Category C grants paid to small businesses and primary producers, where the grant relates to flooding that occurred in Australia on or after 29 November 2010 and those small businesses and primary producers affected by Cyclone Yasi.

Proposal announced : This measure was announced in the Assistant Treasurer and Minister for Financial Services and Superannuation's Media Release No. 016 of 21 January 2011 and in the Deputy Prime Minister and Treasurer, the Premier of Queensland and the Minister Assisting the Attorney-Generals' Joint Media Release No. 010 of 16 February 2011.

Financial impact : The preliminary estimate of the revenue impact of the tax exemption, based on the expected number of small businesses and primary producers affected by floods, is shown in the table below. These estimates do not include any allowance for the extension of assistance to small businesses and primary producers affected by Cyclone Yasi, which cannot be quantified until more information on businesses likely to have been affected is known. The estimates also do not include allowance for future Category C grants that may be made for future events.

Compliance cost impact : Nil.

Increasing the flexibility of First Home Saver Accounts

Schedule 3 to this Bill increases the flexibility of the First Home Saver Accounts Act 2008 by allowing money in a First Home Saver Account to be paid into a genuine mortgage after the end of a minimum qualifying period (should the account-holder purchase a dwelling prior to the release conditions being satisfied) rather than requiring it to be transferred to a superannuation or retirement savings account.

Date of effect : The new rules apply only to persons who acquire a 'qualifying interest' in a dwelling (as defined in section 12 of the First Home Saver Accounts Act 2008 ) after the commencement of this Bill.

Proposal announced : This measure was announced in the 2010-11 Budget and in the Treasurer's Media Release No. 033 of 11 May 2010.

Financial impact : Nil.

Compliance cost impact : Low.