House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon. Josh Frydenberg MP)

Glossary

The following abbreviations and acronyms are used throughout this explanatory memorandum.

General outline and financial impact

Bushfire assistance

Schedule 1 to the Bill amends the ITAA 1997 to make:

•

government support payments to volunteer firefighters in relation to the 2019-20 bushfires non-assessable non-exempt income; and

•

all relief and recovery payments and benefits provided by Australian governments in relation to the 2019-20 bushfires non-assessable non-exempt income.

Date of effect: These amendments apply to the 2019-20 income year and later income years.

Proposal announced: The Prime Minister announced on 29 December 2019 non-assessable non-exempt income tax treatment for payments to volunteer firefighters and the Prime Minister and the Treasurer announced on 8 January 2020 non-assessable non-exempt income tax treatment for all relief and recovery payments and benefits.

Financial impact: The measure has not yet been costed due to the situation still evolving and insufficient time to gather all information required, including needing to source data from the State, Territory and local government agencies. The financial implications are not expected to be significant at this stage and will be reported once the costings have been finalised.

Human rights implications: This Schedule does not raise any human rights issues. See Statement of Compatibility with Human Rights - Chapter 3, paragraphs 3.1 to 3.5.

Compliance cost impact: This measure is expected to have no more than a minor regulatory impact.

Deductible gift recipients

Schedule 2 to the Bill amends the ITAA 1997 to allow the following entities to be deductible gift recipients under the income tax law:

•

Australian Volunteers Support Trust; and

•

Community Rebuilding Trust.

Date of effect: The amendments apply to gifts made in relation to the 2019-20 income year and later income years.

Proposal announced: Not previously announced.

Financial impact: The measure is estimated to have a cost to revenue of $11.1 million over the forward estimates period.

Human rights implications: This Schedule does not raise any human rights issues. See Statement of Compatibility with Human Rights - Chapter 3, paragraphs 3.6 to 3.9.

Compliance cost impact: Nil.

Chapter 1 Bushfire assistance

Outline of chapter

1.1 Schedule 1 to the Bill amends the ITAA 1997 to make:

•

government support payments to volunteer firefighters in relation to the 2019-20 bushfires non-assessable non-exempt income; and

•

all relief and recovery payments and benefits provided by Australian governments in relation to the 2019-20 bushfires non-assessable non-exempt income.

1.2 Affected payments include payments of Disaster Recovery Allowance relating to the bushfires under the Social Security Act 1991 and payments by the States or Territories relating to the bushfires under the Disaster Recovery Funding Arrangements 2018.

1.3 All legislative references in this Chapter are to the ITAA 1997, unless the contrary is specified.

Context of amendments

1.4 Beginning in the second half of 2019, and continuing into 2020, Australia has experienced widespread and severe bushfires with devastating consequences for many individuals and communities.

1.5 The Commonwealth, States and Territories, together with local governments, are providing a wide range of financial and other assistance to families, farmers and business owners affected by the bushfires.

1.6 On 29 December 2019, the Prime Minister announced that the Commonwealth would, in cooperation with the New South Wales State Government, provide financial support to volunteers in the New South Wales Rural Fire Service who are employed by small or medium businesses and have volunteered for an extended period to assist in combating the bushfires occurring in the 2019-20 financial year. Similar arrangements have subsequently been announced for volunteers in other States and Territories.

1.7 On 8 January 2020, the Prime Minister announced that Government payments relating to the bushfires would not be subject to income tax. Later on 8 January 2020, the Treasurer made clear this would include Disaster Recovery Allowance payments made to individuals and payments that would otherwise be taxable under the Disaster Recovery Funding Arrangements.

Detailed explanation of new law

Tax assistance for government payments to volunteer firefighters

1.8 Schedule 1 to the Bill amends the ITAA 1997 to make certain payments to volunteers working with a fire service of a State or Territory non-assessable non-exempt income. [Schedule 1, item 2, section 59-55]

1.9 As a result of the payment or benefit being non-assessable non-exempt income, recipients are not subject to income tax on the payments. The payments also do not reduce any tax losses that individuals may make in the current income year or may have carried forward from prior income years.

1.10 To be eligible to be non-assessable non-exempt income as a result of these amendments, a payment must be:

•

made to an individual on or after 1 January 2020;

•

for the purpose of compensating the individual for loss of income resulting from the individual performing volunteer work with a State or Territory fire service in the 2019-20 financial year; and

•

made by a State or Territory under an agreement with the Commonwealth.

[Schedule 1, item 2, subsection 59-55(1)]

1.11 Consistent with the announcement of the Prime Minister on 29 December 2019, the provision makes all payments under the arrangements between the Commonwealth and States and Territories non-assessable non-exempt income where they are made to volunteer firefighters to compensate them for loss of income as a result of volunteering with a State or Territory fire service concerning the 2019-20 bushfires. The details of the amount of payments and which individuals are eligible will be set out in the relevant agreements between governments and do not affect the tax treatment of the payments for recipients.

1.12 These amendments do not cover payments for purposes other than providing relief to volunteers who have foregone income as a result of their work helping to combat the 2019-20 bushfires. However, payments for the purposes of providing relief or assisting in recovery from the effects of the 2019-20 bushfires may be non-assessable non-exempt income as a result of the related amendments discussed in paragraphs 1.17 to 1.38.

Excluded payments

1.13 Additionally, payments resulting from an individual's employment and worker's compensation payments cannot become non-assessable non-exempt income as a result of these amendments. [Schedule 1, item 2, subsection 59-55(2)]

1.14 This exclusion for payments related to employment deals with anomalies that could otherwise arise if an employee of a government receives special support or assistance from their employer due to the effects of the bushfires (for example, additional leave) or works in a role related to bushfire relief or recovery.

1.15 This exclusion makes clear that the purpose of the amendments is to make payments tax free if they are made to volunteer firefighters to compensate them for foregone income tax, rather than to reduce the tax payable on the remuneration of government employees. It ensures that government employees are treated in the same way as employees of non-government entities in receipt of equivalent employer support.

1.16 Similarly, workers' compensation payments also arise in the context of an employment relationship and are outside the scope of these amendments as they relate to the injury suffered in the context of the employment relationship not to income foregone as a result of volunteering.

2019-20 bushfires disaster relief and recovery payments

1.17 Schedule 1 to the Bill amends the ITAA 1997 to make eligible payments and benefits that would otherwise have been subject to tax non-assessable non-exempt income. [Schedule 1, item 2, section 59-60]

1.18 As a result of the payment or benefit being non-assessable non-exempt income, entities (including individuals and companies) are not subject to income tax on the payments or benefits received. The payments or benefits also do not reduce any tax losses that entities may make in the current income year or may have carried forward from prior income years.

1.19 The amendments do not affect the treatment of payments or benefits that are not assessable income under the law prior to these amendments as these payments or benefits are already free from tax.

1.20 The following sections set out the requirements for payments or benefits to be eligible to be non-assessable non-exempt income as a result of these amendments.

Purpose

1.21 The first requirement is that the purpose of the payment or benefit is to provide an entity with relief from the effects of bushfires commencing in Australia in the 2019-20 financial year or assist the entity in recovering from the bushfires. Further the making of the payment or provision of the benefit must be the direct result of bushfires that commence in the 2019-20 financial year. [Schedule 1, item 2, paragraphs 59-60(1)(a) and (b)]

1.22 This ensures that tax relief applies to relief and recovery payments, to entities affected by the 2019-20 bushfires. Examples of payments with this purpose that are the direct result of the 2019-20 bushfires include payments of Disaster Recovery Assistance for which an entity is eligible because of the 2019-20 bushfires and ex gratia payments made to certain New Zealand citizens who have been affected by the 2019-20 bushfires but who are not eligible for Disaster Recovery Assistance due to their visa arrangements and payments by a State or Territory relating to the 2019-20 bushfires under the Disaster Recovery Funding Arrangements 2018.

1.23 It excludes payments or benefits provided on commercial terms, such as a payment to an entity carrying on a business to acquire goods or services. Commercial payments are, by definition, not for the purposes of providing relief or recovery. They are also not a direct result of the bushfires. This means that, for example, payments by a State Government to a fencing business in a town that is affected by bushfires to repair fences on bushfire-affected public land do not qualify to be non-assessable non-exempt income as a result of this measure as it is a payment for the supply of fencing services. This will be the case even if preference may be given to local or bushfire affected businesses in contracting and tender processes.

1.24 It also excludes government payments provided for general purposes rather than as a direct result of the bushfires, even where these go to entities affected by bushfires. Examples of excluded general payments include export grants under existing programs provided to an export company affected by the bushfires or unemployment benefits that an individual receives because they have become unemployed because of the effect of the bushfires on their place of employment.

1.25 These types of general payments will not be non-assessable non-exempt income even if they go to entities that have been affected by the bushfires. The payments are not directly related to the bushfires and their purpose is not to provide relief from the effects of the bushfires or assistance in recovering from those effects, but instead to provide more support or assistance for entities in a situation that can arise without being linked to bushfires. Depending on their circumstances, entities may be in receipt of both tax free relief and recovery payments as well as government payments for other purposes which remain taxable.

2019-20 Bushfires

1.26 When determining if a payment provides relief or assists in the recovery from the 2019-20 bushfires, the 2019-20 bushfires include all bushfires that commence in the 2019-20 financial year. This ensures that tax relief is available for government relief and recovery payments relating to these bushfires even if the bushfires continue to cause damage after the end of the 2019-20 financial year. [Schedule 1, item 2, paragraph 59-60(1)(a)]

Government payments

1.27 The second requirement is that the payment is made by the Commonwealth, a State or Territory, or a local government. This reflects the intention is that government support payments are to be tax free. Private donations and other forms of charitable support are outside the scope of this measure. The Government supports the charities sector and encourages private donations through other means. [Schedule 1, item 2, paragraph 59-60(1)(c)]

Limitations

Payments related to employment

1.28 However, the amendments provide that certain kinds of payments cannot be eligible to be non-assessable non-exempt income even if they satisfy the requirements outlined above. These types of excluded payments include payments resulting from an individual's employment as well as worker's compensation payments. [Schedule 1, item 2, paragraphs 59-60(3)(a) and (b)]

1.29 The exclusion for payments related to employment deals with anomalies that could otherwise arise if an employee of a government receives special support or assistance from their employer due to the effects of the bushfires (for example, additional leave) or works in a role related to bushfire relief or recovery.

1.30 This exclusion makes clear that the tax benefits provided by the amendments are intended to assist entities in receipt of government relief or recovery payments, not affect the taxation of the remuneration of government employees. It ensures that all employees in receipt of employer support are treated consistently.

1.31 The exclusion is only relevant to payments or benefits provided by an employer (that, as the measure is limited to governments, must be a government) to an employee in respect of their employment. It does not have any effect on the treatment of relief or recovery payments to entities, including businesses that do not result from an employment relationship with the government, even if the purpose of that payment may be to help the entity support its own employees.

1.32 Similarly, workers compensation payments also arise in the context of an employment relationship and are outside the scope of these amendments as they relate to the injury suffered in the context of the employment relationship not to income foregone as a result of volunteering.

Damages and other compensation payments

1.33 The amendments also, for the avoidance of doubt, exclude payments of damages or compensation paid by an Australian government as a result of an order of a court or tribunal, or in settlement of a claim. [Schedule 1, item 2, paragraph 59-60(3)(c)]

1.34 This exclusion makes clear that the tax benefits provided by the amendments are intended to assist entities in receipt of government relief or recovery payments, not affect the taxation of damages and other compensation payments. The tax treatment of such payments can already be taken into account by courts in determining the amount of any damages payment, so the effect of non-assessable non-exempt income would only be to shift costs to the tax system.

Payments and benefits specified by regulations

1.35 The amendments made by Schedule 1 provide that a payment or benefit is also non-assessable non-exempt income if it:

•

relates to bushfires commencing in 2019-20; and

•

is of a kind of payment or benefit prescribed for these purposes in regulations made under the ITAA 1997.

[Schedule 1, item 2, subsection 59-60(2)]

1.36 This provision allows for regulations to extend the scope of the concession for government relief and recovery payments to cover new kinds of payments and benefits that are related to the 2019-20 bushfires.

1.37 Given the broad scope of the payments and benefits made non-assessable non-exempt income by other provisions included by the amendments, it is not expected that this power will need to be exercised. However, this instrument making power was considered necessary so that, if required, new forms of support can be made non-assessable non-exempt income quickly, in order to avoid uncertainty and prevent any unintended tax consequences for recipients.

1.38 Any regulations would be a legislative instrument and subject to the full process of Parliamentary scrutiny, including disallowance, as set out in the Legislation Act 2003.

Consequential amendments

1.39 Schedule 1 also makes consequential amendments to reflect the new categories of non-assessable non-exempt income in the table listing items of non-assessable non-exempt income in section 11-55. [Schedule 1, item 1, section 11-55]

Application and transitional provisions

1.40 The amendments made by Schedule 1 to the Bill commence on the day after the Bill receives Royal Assent. They apply for the 2019-20 income year and later income years. [Clause 2 and Schedule 1, item 3]

1.41 It is expected that many of the government support payments to volunteer firefighters relating to the 2019-20 bushfires and government assistance payments or benefits relating to the 2019-20 bushfires will be made or provided in the 2019-20 income year. However, if such payments or benefits are made or provided in later income years then they will still be non-assessable non-exempt income for recipients.

1.42 Although, the amendments apply retrospectively to the 2019-20 income year, they are wholly beneficial to affected taxpayers as they ensure that no income tax liability arises to recipients of the payments and other assistance from Australian governments.

Chapter 2 Deductible gift recipients

Outline of chapter

2.1 Schedule 2 to the Bill amends the ITAA 1997 to allow the following entities to be deductible gift recipients under the income tax law:

•

Australian Volunteers Support Trust; and

•

Community Rebuilding Trust.

Context of amendments

2.2 Beginning in the second half of 2019, and continuing into 2020, Australia has experienced widespread and severe bushfires with devastating consequences for many affected individuals and communities.

2.3 The income tax law allows income tax deductions for taxpayers who make gifts of $2 or more to a deductible gift recipient. Deductible gift recipients are entities that fall within one of the general categories set out in Division 30 of the ITAA 1997 or are specifically listed by name in that Division.

2.4 Deductible gift recipient status helps eligible organisations attract public financial support for their activities.

2.5 The Australian Volunteers Support Trust is a charity that provides support to:

•

families of any volunteer who tragically loses their life or suffers a serious injury through their volunteer work in relation to a disaster in Australia; and

•

volunteers who become seriously injured through their volunteer work in relation to a disaster in Australia.

2.6 The Community Rebuilding Trust is a charity that provides support for the rebuilding and re-establishing of communities affected by disasters in Australia.

2.7 All references to legislation in this Chapter are to the ITAA 1997 unless otherwise stated.

Summary of new law

2.8 Schedule 2 to the Bill amends the ITAA 1997 to allow the following entities to be deductible gift recipients under the income tax law:

•

Australian Volunteers Support Trust; and

•

Community Rebuilding Trust.

Detailed explanation of new law

2.9 Taxpayers may claim an income tax deduction for gifts made to the Australian Volunteers Support Trust (ABN 75 818 737 065) provided the gift complies with the existing requirements of the income tax law. This amendment ensures that the Australian Volunteers Support Trust receives appropriate support through the Commonwealth tax system for supporting volunteers affected by disasters in Australia and their immediate families. [Schedule 2, item 1, table item 4.2.45 in the table in subsection 30-45(2)]

2.10 Taxpayers may claim an income tax deduction for gifts made to the Community Rebuilding Trust (ABN 70 294 342 832) provided the gift complies with the existing requirements of the income tax law. This amendment ensures that the Community Rebuilding Trust receives appropriate support through the Commonwealth tax system for supporting the rebuilding of communities affected by disasters in Australia. [Schedule 2, item 1, table item 4.2.46 in the table in subsection 30-45(2)]

Consequential amendments

2.11 Schedule 2 to the Bill also amends the index for Division 30 to reflect the new listings. [Schedule 2, item 2, table item 27AAA in the table in section 30-315, and item 4, table item 34A in the table in section 30-315]

2.12 A minor consequential change is also made to numbering in the index for Division 30. [Schedule 2, item 3, section 30-315]

Application and transitional provisions

2.13 The amendments commence on the day after Royal Assent. [Clause 2]

2.14 The amendments apply to gifts made to the following entities for the 2019-20 income year and later income years:

•

Australian Volunteers Support Trust; and

•

Community Rebuilding Trust.

2.15 The amendments apply retrospectively. However, the amendments do not disadvantage affected parties as the changes are wholly beneficial to both the taxpayers making gifts to these entities of $2 or more, and the entities that receive those gifts.

Chapter 3 Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Bushfire assistance

3.1 Schedule 1 to the Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Overview

3.2 Schedule 1 to the Bill amends the ITAA 1997 to make:

•

government support payments to volunteer firefighters in relation to the 2019-20 bushfires non-assessable non-exempt income; and

•

all relief and recovery payments and benefits provided by Australian governments in relation to the 2019-20 bushfires non-assessable non-exempt income.

3.3 Affected payments include payments of Disaster Recovery Allowance relating to the bushfires under the Social Security Act 1991 and payments by the States or Territories relating to the bushfires under the Disaster Recovery Funding Arrangements 2018.

Human rights implications

3.4 Schedule 1 to the Bill does not engage any of the applicable rights or freedoms.

Conclusion

3.5 Schedule 1 to the Bill is compatible with human rights as it does not raise any human rights issues.

Deductible gift recipients

3.6 Schedule 2 to the Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Overview

3.7 Schedule 2 to the Bill amends the ITAA 1997 to enable the following entities to be deductible gift recipients under the income tax law:

•

Australian Volunteers Support Trust; and

•

Community Rebuilding Trust.

Human rights implications

3.8 Schedule 2 to the Bill does not engage any of the applicable rights or freedoms.

Conclusion

3.9 Schedule 2 to the Bill is compatible with human rights as it does not raise any human rights issues.