Explanatory Memorandum
(Circulated by authority of the Assistant Treasurer, the Hon Stuart Robert MP)Chapter 1 Income tax exemption for flood assistance support
Outline of chapter
1.1 Schedule 1 to the Bill amends the ITAA 1997 to make grants non-assessable non-exempt income if they:
- •
- are Category C or D measure disaster recovery grants paid to small businesses, primary producers or non-profit organisations; and
- •
- relate to flooding that commenced in Australia in the period between 25 January 2019 and 28 February 2019 (inclusive).
1.2 As a result, Category C and D measure grants to small businesses, primary producers and non-profit organisations affected by floods in North Queensland in late January 2019 and that continued into February 2019 are non-assessable non-exempt income.
1.3 Schedule 1 to the Bill also amends the ITAA 1997 to make grants to primary producers non-assessable non-exempt income if the grants are for repairing or replacing farm infrastructure, restocking or replanting, and they are provided for the purposes of an agreement between the Commonwealth and a State or Territory to assist primary producers affected by the flooding.
1.4 As a result, such grants to primary producers in North Queensland affected by floods in late January 2019 that continued into February 2019 are non-assessable non-exempt income.
1.5 All references are to the ITAA 1997 unless otherwise stated.
Context of amendments
1.6 North Queensland experienced widespread and severe extended flooding from a monsoonal trough in late January 2019 that continued into February 2019 that caused large scale destruction and severe damage to property in the region.
1.7 The Australian and Queensland Governments have announced the payment of Category C and D measure disaster recovery grants to eligible small businesses, primary producers and non-profit organisations affected by flooding in North Queensland in late January 2019 that continued into February 2019.
1.8 The Australian and Queensland Governments will also provide additional grants to eligible primary producers affected by the floods. These additional grants will assist with the repair and replacement of farm infrastructure, and restocking and replanting.
Detailed explanation of new law
1.9 Schedule 1 to the Bill amends the ITAA 1997 to make the following two kinds of grants non-assessable non-exempt income:
- •
- recovery grants; and
- •
- restocking, replanting and farm infrastructure grants.
Recovery grants
1.10 Small businesses, primary producers and non-profit organisations affected by the North Queensland monsoonal trough flooding may be eligible for Category C and D measure disaster recovery grants under the Disaster Recovery Funding Arrangements 2018 (the Determination).
1.11 Schedule 1 to the Bill makes these grants non-assessable non-exempt income. This Determination is an administrative determination made by the Minister for Law Enforcement and Cyber Security on 5 June 2018 that applies to disasters that occur on or after 1 November 2018.
1.12 Grants are non-assessable non-exempt income if they:
- •
- are, for the purposes of the Determination, Category C or D measure disaster recovery grants paid to small businesses, primary producers or non-profit organisations; and
- •
- relate to flooding that commenced in Australia in the period between 25 January 2019 and 28 February 2019 (inclusive).
[Schedule 1, item 2, section 59-85]
1.13 Making these grants non-assessable non-exempt income ensures the grants are not subject to income tax. The amendments also ensure the grants do not reduce the amount of a taxpayer's tax losses from prior income years that can be carried forward and applied to reduce their taxable income in future years.
1.14 The terms small business, primary producer and non-profit organisation are all defined in the Determination. These definitions apply when determining if a grant is a recovery grant paid to such an entity for the purposes of the Determination. This ensures there is consistency between the tax law and the framework used in the Determination.
Restocking, replanting and farm infrastructure grants
1.15 Schedule 1 to the Bill also makes certain grants to primary producers for replacing or repairing farm infrastructure, restocking or replanting, or a similar purpose, non-assessable non-exempt income. Non-assessable non-exempt income tax treatment applies to a grant for the purposes of an agreement entered into between the Commonwealth and a State or Territory, such as Queensland, if:
- •
- the agreement is signed between 1 February 2019 and 1 July 2019 (inclusive); and
- •
- the objective of the agreement is principally to assist primary producers impacted by floods commencing in Australia in the period between 25 January 2019 and 28 February 2019 (inclusive).
[Schedule 1, item 2, section 58-86]
1.16 The amendments also apply to grants made for a similar purpose to replacing or repairing farm infrastructure, and restocking or replanting. This ensures grants are not excluded because part of the grant is for related ancillary costs and to make clear the terms replacing and repairing farm infrastructure, and restocking and replanting, have a broad meaning. [Schedule 1, item 2, paragraph 59-86(1)(b)]
1.17 As these grants are to be made for the purposes of an agreement between the Commonwealth and a State or Territory, rather than the Determination, they will not be covered by the amendments relating to recovery grants paid for the purposes of the Determination. Instead, the amendments ensure any such payments made for the purposes of an agreement between the Commonwealth and the Queensland Government to address the effects of flooding on primary producers' farm infrastructure, their farm livestock and agricultural plants are non-assessable non-exempt income.
1.18 Consistent with the grants made under the Determination, making these grants non-assessable non-exempt income ensures the grants are not subject to income tax. The amendments also ensure the grants do not reduce the amount of a taxpayer's tax losses from prior income years that can be carried forward and applied to reduce their taxable income in future years.
Consequential amendments
1.19 The table in section 11-55 of the ITAA 1997 that lists provisions that make amounts non-assessable non-exempt income is amended to add the Category C and D measure disaster recovery grants, and the restocking, replanting and farm infrastructure grants. [Schedule 1, item 1, table item headed 'disasters' in section 11-55]
Application and transitional provisions
1.20 The amendments commence on the first day of the first quarter to occur after the day the Bill receives Royal Assent. [Clause 2 of the Bill]
1.21 The amendments apply to assessments for the 2018-19 income year and later income years in which qualifying grant amounts are derived. [Schedule 1, item 3]
1.22 This means the amendments apply retrospectively from the start of the 2018-19 income year. However, the amendments are beneficial to all affected taxpayers as they retrospectively ensure Category C and D measure disaster recovery grants paid to small businesses, primary producers and non-profit organisations and on-farm grants paid to primary producers are treated as non-assessable non-exempt income. This removes any obligation to pay income tax on the grants.