Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Josh Frydenberg MP)Chapter 5 - Tax-free treatment of COVID-19 disaster payments
Outline of chapter
5.1 Schedule 5 to the Bill amends the income tax law to make Commonwealth COVID-19 disaster payments to individuals non-assessable non-exempt income so that they are not subject to income tax.
Context of amendments
5.2 The Prime Minister, Treasurer, Minister for Emergency Management and the Minister for Government Services jointly announced on 3 June 2021 the establishment of the COVID-19 disaster payment. The payment provides support to eligible individuals that live or work in hotspot areas and have had their income affected by COVID-19 restrictions.
5.3 The Commonwealth payments are being made by Services Australia to eligible individuals. Under the income tax law payments of this nature to compensate for lost income are generally subject to income tax by the Commonwealth.
5.4 Extending non-assessable non-exempt income tax treatment to COVID-19 disaster payments ensures that the payments are not subject to income tax by the Commonwealth. This concessional treatment ensures that appropriate support is provided to qualifying individuals facing the economic consequences of COVID-19 movement restrictions in hotspot areas affecting their ability to earn an income.
Detailed explanation of new law
5.5 Schedule 5 amends the income tax law to make Commonwealth COVID-19 disaster payments non-assessable non-exempt income. [Schedule 5, item 2, section 59-96 of the ITAA 1997]
5.6 The amendment ensures that payments received by an individual are not subject to income tax where they satisfy the definition of a COVID-19 disaster payment under the COVID-19 Disaster Payment (Funding Arrangements) Act 2021. This Act establishes a special appropriation to draw funds from the Consolidated Revenue Fund for the payment of COVID-19 disaster payments. The term COVID-19 disaster payment is defined in that Act to mean a payment or grant of financial assistance covered by item 492 of the table in Part 4 of Schedule 1AB to the Financial Framework (Supplementary Powers) Regulations 1997. The Regulations authorise payments to eligible individuals under the COVID-19 disaster payment that live or work in hotspot areas and have had their income affected by COVID-19 restrictions.
Consequential amendments
5.7 The table in section 11-55 of the ITAA 1997 lists provisions that make amounts non-assessable non-exempt income. Schedule 5 amends the table to include COVID-19 disaster payments. [Schedule 5, item 1, table item headed 'Coronavirus economic response' of the table in section 11-55 of the ITAA 1997]
Application and transitional provisions
5.8 The amendments apply to assessments for the 2020-21 income year and later income years. [Schedule 5, item 3]
5.9 Although the amendments apply retrospectively, they are wholly beneficial for affected individuals as they ensure that any COVID-19 disaster payments they receive are not subject to income tax. Without the amendments these payments would form part of their assessable income.
5.10 Schedule 5 commences on the day after Royal Assent. [Clause 2]