GST issues registers

Primary production industry partnership

11 Government grants and payments

Many of the payments and grants referred to below were made under arrangements that had sunset clauses. Some refer to circumstances relating to the transition to GST on or about 1 July 2000. As a result some of these payments may have been either phased out or been replaced by other government programs. The answers are given here for historical purposes and to provide an understanding of the application of the GST legislation to similar payments that are made now or in the future.

Information regarding the programs currently available should be sought from the Department of Agriculture, Fisheries and Forestry (DAFF). Other state based grants information can be found at the relevant State Department of Primary Industries/Agriculture site.

It is important to appreciate that the GST treatment for one grant may differ from another even if they are part of the same government initiative package. Similarly it does not follow that because a grant may not be subject to GST that it will also not be subject to income tax. ATO decisions are based upon the facts in each particular case and if there are any doubts then a Private Ruling should be sought.

11.1 Grants

11.1.1 - How will grants be treated under GST?

For the source of the ATO view, refer to:

•: GSTR 2012/2 - Goods and services tax: financial assistance payments
•: GSTR 2019/1 Goods and services tax: supply of anything other than goods or real property connected with the indirect tax zone (Australia)
•: MT 2006/1 - The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an ABN
•: TR 97/11 - Income tax: am I carrying on a business of primary production?

On 30 May 2012 the ATO issued a ruling on financial assistance payments - GSTR 2012/2 - Goods and Services Tax: financial assistance payments.

For a financial assistance payment (formerly known as a grant of financial assistance) to be consideration for a supply there must be a sufficient nexus between the financial assistance payment made by the payer and a supply made by the payee. This will depend on the particular facts and circumstances of each grant program.

The term grant is not defined and the general principles of the GST Act apply in determining whether GST is payable on a grant transaction.

GST is payable in respect of taxable supplies. Supplies made in connection with the receipt of a grant will be subject to GST where the grant represents consideration for a supply which is a taxable supply.

Grants will be subject to GST if the following four tests are satisfied:

•: Is the grant consideration for a supply by the recipient to the grant provider?
•: Is the supply to which the grant relates made as part of the recipient's enterprise?
•: Is the supply for which the grant is paid connected to Australia?
•: Is the recipient of the grant registered, or required to be registered, for GST?

A. Is the grant consideration for a supply by the recipient to the grant provider?

For the current ATO view about whether the financial assistance payment is consideration see paragraphs 100 to 114 of .

This part of the answer previously stated:

The first test can be answered by considering whether a grant is conditional or unconditional. If the grant recipient undertakes or is required to do something in exchange for the funds this is a supply by the recipient for which the grant is consideration. The grant would therefore represent consideration for that supply. Conditional grants made to a registered entity will usually be subject to GST.

While a gift to a non-profit body is not consideration and so not subject to GST, most grants are not gifts. As mentioned above, a gift is something that is given by a donor out of generosity or benefaction, made voluntarily, and with no material benefit provided to the donor as a result of the gift. Funding grants do not generally have this character.

B. Is the supply to which the grant relates made as part of the recipient's enterprise?

The second test asks whether the supply by the grant recipient is made in the course of the recipient's enterprise. Activities performed in the form of a business, adventure, or a concern in the nature of trade may fall within this test.

Hobby farmers by their very nature are not enterprises as explained further in MT 2006/1 - The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number and TR 97/11 - Income tax: am I carrying on a business of primary production?

C. Is the supply for which the grant is paid connected to Australia?

The third test requires that the supply is connected with Australia. The supply of anything other than goods or real property is connected with Australia if the thing is done in Australia or is made through an enterprise carried on in Australia. The ATO has issued a ruling on the meaning of 'connected with Australia', - Goods and Services Tax: supplies connected with Australia.

D. Is the recipient of the grant registered, or required to be registered, for GST?

The last test requires the supplier to be registered, or required to be registered, for GST. Qualifying financial assistance payments made to registered entities will be subject to GST provided the payments are connected with Australia.

Further information on Grants can be found in:

Part 5 of the Charities consultative committee resolved issues document

The fact sheet: Grants and GST - Recipient created tax invoices (NAT 7038) was withdrawn on 12 December 2007.

11.2 Government Relief Payments

11.2.1 - Government relief payments for destruction of crops due to disasters

Question

Will government relief payments associated with the destruction of livestock, crops, etc., due to disasters, for example, bushfire, flood, oil spill, etc., be subject to GST?

Non-interpretative - straight application of the law

Answer

Payments of income support and interest rate subsidies from government relief programs to farmers will generally not be subject to GST. Payments in the nature of reimbursement grants to farmers under these programs will also generally not be subject to GST.

Explanation

Payments of income support and existing debt interest rate subsidies will not be subject to GST as the grant recipient is usually not making a taxable supply.

Most often the grant recipient is merely satisfying eligibility requirements that will either ensure they are entitled to the payments or not. Although there may be some expectation that the money will be used for certain purposes (for example, paying back loans), there is no legally binding obligation.

Under these circumstances the payments by government entities are therefore not consideration in return for a supply by the grant recipient. The grant recipient is therefore not making a taxable supply to the government in return for the payment and accordingly no GST is applicable to the transaction.

In the case of reimbursement grants, the grant recipient usually has expended the money and is seeking reimbursement only. This is not a taxable supply by the grant recipient and the grant will not be subject to GST.

A specific example of a government relief package, the Federal Government Flood Package, is discussed further at issue 11.4.1.

11.2.2 - For PAYG purposes how is the income from the forced disposal of livestock treated?

Does not relate to an indirect tax specific issue

Question

For PAYG purposes, how is the income from the forced disposal of livestock treated?

Answer

Income from the forced disposal of livestock can be returned over five years (under section 385-105 of the Income Tax Assessment Act 1997). Where this is the case only one fifth of the total profit from the sale is included in instalment income for the income year in which the disposal takes place. The remaining four fifths is statutory income and is not included in the instalment income. The tax on this statutory income will be collected on assessment over the remaining four years.

11.3 Dairy

11.3.1 - Dairy Industry Restructuring Compensation Package

This issue is no longer relevant as the Dairy Structural Adjustment Program (DSAP) ceased in 2008. The issue previously stated:

Question

Will Dairy farmers be liable for GST on payments made under the Dairy Structural Adjustment Program and the Dairy Exit Program?

Non-interpretative - straight application of the law.

Answer

No.

Explanation

Payments made to Dairy farmers under either the Dairy Structural Adjustment Program (DSAP) or Dairy Exit Program (DEP) are considered to be grants of financial assistance. The GST treatment of grants is discussed in Goods and Services Tax Ruling GSTR 2000/11 Goods and Services Tax: Grants of Financial Assistance.

Paragraph 10 of the ruling states:

GST is payable in respect of taxable supplies. Supplies made in connection with the receipt of a grant will be subject to GST where the grant represents consideration for a supply which is a taxable supply.

It is, therefore, necessary to determine whether Dairy farmers make a supply in relation to the payments under both DSAP and DEP.

Section 9-10 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) defines the meaning of supply. It says that a supply is any form of supply whatsoever and includes the creation, grant, transfer, assignment or surrender of any right.

However, Paragraph 33 of GSTR 2000/11 states:

For there to be a supply of rights or obligations, such rights or obligations must be binding on the parties. The creation of expectations among the parties does not establish a supply. An agreement that does not bind the parties in some way would not be sufficient to establish a supply by one party to the other unless there is something else, such as goods or some other benefit, passing between the parties.

Dairy Structural Adjustment Program

The DSAP consists of payments from the Dairy Adjustment Authority (DAA) to dairy farmers. This is to assist them to adjust to a deregulated environment. DSAP payments are paid to dairy farmers who operate as various entities including sole traders, partnerships, companies and trusts. There are three types of payment under the scheme:

•: standard payments,
•: exceptional events supplementary payments, and
•: anomalous circumstance payments.

In order to be eligible for standard payments, dairy farmers must hold an eligible interest in the enterprise at 6.30pm on 28 September 1999 and the enterprise must have delivered milk during the financial year beginning on 1 July 1998. Similar provisions apply in the case of exceptional events supplementary payments and anomalous circumstance payments. The main requirement placed on the recipients of these payments is that written claims contain enough information to enable the Dairy Adjustment Authority to determine eligibility for payment.

In the case of payments made under the Dairy Structural Adjustment Program (DSAP) no obligation is placed on the recipient.

Therefore, there is no supply.

Dairy Exit Program

The DEP payments are made to assist farmers who exit the dairy industry and are paid by Centrelink. In order to be eligible for payment the recipient must first have been granted a DSAP payment right. They were also required to sell their farm and exit the dairy industry. There was a requirement that the farmer remain outside the agricultural industry for five (5) years but this was not binding on the recipient of the payment.

The requirement to be excluded from an industry for a period of time is a restrictive covenant. If a restrictive covenant is enforced it will be a supply. However, in circumstances where the obligation is not binding, there is no supply.

In addition, under the DEP program the dairy farmers have already exited the industry and consequently the supply will not be made in the course or furtherance of an enterprise that they are carrying on. Therefore, it is considered that on this basis any obligation entered into in relation to the DEP program will not constitute a taxable supply.

11.3.2 - What is the income tax effect of the Dairy Structural Adjustment Program?

This issue is no longer relevant as the Dairy Structural Adjustment Program (DSAP) ceased in 2008. The issue previously stated:

Does not involve the interpretation of an indirect tax law.

Answer

Please refer to the following fact sheet on the Dairy Structural Adjustment Program:

Dairy Structural Adjustment Program

Acquisition and disposal of a payment right unit

Background

The Dairy Structural Adjustment Program (DSAP) Scheme was introduced to assist dairy farm enterprises to restructure their business following the deregulation of the dairy industry on 1 July 2000. Under the DSAP scheme, an entity meeting the eligibility criteria in respect of a dairy farm enterprise is granted the right to receive regular quarterly payments. A right to receive payments is known as a DSAP payment right.

Each DSAP payment right consists of a number of 'units'. Each unit has a face value of $32 and the registered owner of a unit is entitled to a $1 payment each quarter over an eight year period. These units can be transferred or sold among primary producers.

Are the quarterly payments assessable income?

Under section 75 of the Dairy Industry Adjustment Act 2000 (DIAA 2000) the payments received by the entity to whom a payment right has been granted are to be taken to be subsidies under section 15-10 of the Income Tax Assessment Act 1997 and are included in assessable income of that entity.

A subsequent owner of units is considered to have acquired an annuity in terms of section 27H of the Income Tax Assessment Act 1936. Regular payments arising from the annuity are assessable income. Where the annuity was purchased, a deduction is allowed in relation to the undeducted purchase price of the annuity.

Are the quarterly payments income from primary production?

The payments received by the entity to whom a payment right has been granted arise from ownership of the eligible dairy farm enterprise. These payments are considered income from primary production but only while the dairy farm enterprise continues to be carried on.

A subsequent owner of units has acquired an annuity. A subsequent owner has not been granted a payment right in respect of an eligible dairy farm enterprise. In this case, the payments are not regarded as income from the carrying on of a business of primary production.

What are the tax consequences of disposing of a payment right unit?

A payment right unit is an asset for capital gains tax purposes. An entity that disposes of a payment right unit makes a capital gain equal to the amount of the capital proceeds from the disposal less the cost base of the unit disposed of.

Generally, the capital proceeds are the amount received for the disposal of the units. Where units expire at the end of the eight year period the capital proceeds are likely to be nil. However, where an entity transfers units before expiry for no capital proceeds (or for capital proceeds in a non-arm's length transaction that are less or more than the assigned unit's market value), the capital proceeds are taken to be the market value of the units transferred. The market value of the units would be based upon the present value of the remaining income stream attached to the units.

For an entity to whom the grant was made, the cost base of the units is nil, except for any incidental costs. This means that the full amount of the capital proceeds (less incidental costs) would be included in assessable income as a capital gain in the year of transfer. This entity would normally be considered to have acquired the units 28 days after having received the Notice of Decision, in accordance with section 18 of the DSAP Scheme.

Where an entity disposes of the dairy farm enterprise and all its assets (including the units) and the sale price for the dairy farm enterprise does not specifically refer to an amount for the units, an apportionment of the full consideration received for the dairy farm enterprise needs to be made for the units.

Generally capital gains and capital losses can be offset against each other. In addition, a capital gain made by individuals or certain trusts on assignment of a unit held for at least 12 months would qualify for the 50% capital gains tax discount. However, the small business capital gains tax concessions would not apply because the payment right (as a form of financial instrument) would not be an active asset.

What are the tax consequences of acquiring a payment right unit?

An entity that purchases a payment right unit has acquired an asset for capital gains tax purposes. The amount given to acquire the units is the first element of the cost base. However, where a deduction has been allowed for the purchase price of the units (for example, the undeducted purchase price), the cost base of the units is reduced by the amount which has been allowed as a deduction. Therefore, in many cases, the cost base (and any potential capital loss upon expiry of the units) would be reduced to nil.

Where an entity does not pay an amount to acquire the units (for example, a gift), the entity is taken to have acquired the units at their market value at the time of acquisition. As no deduction is available for an undeducted purchase price of an annuity in these circumstances, there would be no reduction in the cost base when calculating any capital gain.

Example 1

Maids-A-Milken Pty Ltd was granted a payment right by the Dairy Adjustment Authority of $32,000. This payment right consisted of 1000 units with a face value of $32. Each unit entitles the holder to four quarterly payments of $1 over eight years.

Each payment received is a grant or subsidy and is included in assessable income in the year of receipt. For capital gains purposes, the cost base of the payment right is nil. If Maids-A-Milken does not sell any units, the units will expire when the last payment is made by the Dairy Adjustment Authority. Maids-A-Milken will have received the full value of the units as assessable income and nothing on disposal. Therefore, no capital gain or loss would arise.

On the other hand, should Maids-A-Milken decide to dispose of any or all of the units, a capital gain would arise. However, Maids-A-Milken may be entitled to offset this capital gain against existing capital losses.

Example 2

Daphne sells her dairy farm to Mario. Mario intends to carry on the dairy business previously conducted by Daphne. Mario purchases all the assets of the farm, including a payment right granted to Daphne by the Dairy Adjustment Authority. The sale contract does not apportion any value to individual assets, although the contract specifically includes the payment right that Daphne had been granted.

An apportionment of the total price paid by Mario to acquire the farm needs to be made to determine the purchase price for the units. The amount apportioned to the units should be so much of the total price as is reasonably attributable to the units and would be related to the market value of the units.

Example 3

Clyde was granted a payment right to the value of $100,000 by the Dairy Adjustment Authority in respect of an eligible dairy business he conducted. Clyde receives his payments for two years and then sells all of the units to Farmer Brown for $60,000.

Clyde is assessed on the income received during the two years as income from primary production. In addition, the $60,000 received for the disposal of the units is a capital gain (assuming no incidental costs). This capital gain can be offset against capital losses. He may also be entitled to a 50% discount on the capital gain.

Farmer Brown has purchased an annuity for $60,000. The payments will be included in Farmer Brown's assessable income upon receipt ($12,500 per annum) but a deduction will be available for the undeducted purchase price of the annuity ($10,000 per annum). Upon expiry of the units the cost base ($60,000) is reduced by the amount previously allowed as a deduction ($60,000). This reduces the cost base to nil. Because Farmer Brown receives nothing upon expiry of the payment right, he makes neither a capital gain nor a capital loss.

Example 4

Dave is a sharefarmer. He has been granted a payment right in respect of an eligible dairy farm enterprise. The land owner, Belinda, has also been granted a payment right. To fund improvements to the farm, Dave agrees to transfer some or all of his units to Belinda. Dave receives no consideration for the transfer of the units.

Dave has disposed of a valuable asset for no or inadequate consideration. He is treated as disposing of the units for market value, which would be the present value of the income stream attached to the units. As the cost base is nil, Dave will be subject to a capital gain which would be included in his assessable income in the year of disposal.

Belinda has acquired an annuity. The annuity payments are included in her assessable income in the income year they are received. As Belinda paid no purchase price to acquire the annuity, the undeducted purchase price of the annuity is nil. Accordingly, no allowable deduction would be available for the annuity payments.

However, Belinda has also acquired a capital gains tax asset. As Belinda did not purchase the units, she is taken to have acquired them at their market value at the time of acquisition. This is the cost base of the units. If Belinda keeps the units until they expire, a capital loss would arise as the cost base of the units would not have been reduced by an amount for the undeducted purchase price of the annuity attached to the units.

11.3.3 - Dairy deregulation

Does not relate to an indirect tax specific issue

Capital loss on quotas:

The legislation deregulating the dairy industry in Western Australia, Queensland and New South Wales has the effect of cancelling the existing quotas.

Accordingly, for cancelled quotas acquired after 19 September 1985, a capital loss equal to the cost base of the quota is made. No additional action is necessary to realise the capital loss. However, for quotas acquired before 20 September 1985 no capital loss is available.

If any compensation becomes payable for the cancellation of quotas the capital loss will be reduced by the amount of the compensation. The Dairy Structural Adjustment Program (DSAP) amounts and the Dairy Exit Payment (DEP) amounts (see background) are not compensation for the cancellation of the quotas.

Capital losses made from the cancellation of the quotas, as a result of the deregulation of the dairy industry, are made in the 2000-01 income year because the quotas are cancelled in that year.

Capital losses can only reduce current and future capital gains. There is no time limit by which the capital losses must be offset.

Questions and decision:

(a) (i) What happens to the quotas once the regulations are removed?

Decision:

Once the regulations are removed the quotas are cancelled.

Question:

(a) (ii) After deregulation by the States quotas will no longer exist. Does this mean that they have zero value and holders can realise a capital loss?

Decision:

For cancelled quotas acquired after 19 September 1985, a capital loss equal to the cost base of the quota is made. However, for quotas acquired before 20 September 1985 no capital loss is available.

Question:

(b) (i) Do quotas have to be sold to realise any capital loss?

Decision:

No. The cancellation of a quota will give rise to a capital loss.

Question:

(b) (ii) Is the capital loss attributable to the 1999-2000 income year or the 2000/2001 income year?

Decision:

The capital loss is attributable to the 2000-01 income year because the quotas are cancelled in that year.

Question:

(c) (i) Do State Governments actually have to resume the quotas at 'nil' value for a capital loss to exist?

Decision:

No. However, any compensation payable for the cancellation of a quota will reduce the capital loss by the amount of the compensation. (The DSAP amounts and the DEP amounts are not compensation for the cancellation of the quotas).

Question:

(c) (ii) Is such a capital loss allowable for taxation purposes?

Decision:

Capital losses can only reduce current and future capital gains. There is no time limit by which the capital losses must be offset.

Background:

•

The dairy industry regulatory environment was divided into two broad categories based on whether milk is used as liquid milk for human consumption (market milk) or in the manufacture of dairy products (manufacturing milk). Manufacturing milk arrangements were underpinned by Commonwealth legislation that provided for the operation of the Domestic Market Support (DMS) scheme. The DMS scheme ended on 1 July 2000.

•

Market milk arrangements were underpinned by State legislation and provided a guaranteed producer price for milk used as market milk that was about double the producer price for manufacturing milk. The mechanisms for guaranteeing this premium varied between each State and Territory. Quota arrangements operated in New South Wales, Queensland and Western Australia while Victoria, South Australia and Tasmania operated different schemes which provided for equitable sourcing and payment for market milk.

•

The Commonwealth has facilitated the provision of a $1.74 billion package to assist farmers to make the transition to a deregulated environment which is to be funded via a retail levy of 11 cents/litre and which provides for two types of payments to farmers as follows:

-: Dairy Structural Adjustment Program (DSAP) payments - these are quarterly payments to be received over an 8 year period. They have been based on farmers 1998-99 milk deliveries and calculated at the rate of 46.23 cents per litre for market milk and an average 8.96 cents per litre for manufacturing milk;
-: Dairy Exit Payments (DEP) - available for farmers who choose to leave agriculture.

•

The Dairy Industry Adjustment Act 2000 (Cth) (DIAA) provides for the following treatment of the two types of payments:

-: DSAP payments - treated as subsidies and therefore assessable under s 15-10 of the Income Tax Assessment Act 1997 (ITAA97);
-: DEP - the DIAA amended the CGT provisions in the ITAA 1997 (section 118-37) to provide that any capital gain or capital loss made in relation directly to a DEP is disregarded.

•

The Commonwealth package was conditional on all States and Territories agreeing to remove their regulated farm gate pricing arrangements. This has now been done via the repeal of legislation in each State.

11.4 Flood relief

Note: This advice is based on the information and joint press release provided to the ATO by the Commonwealth Department of Agriculture, Fisheries, Forestry - Australia (AFFA), through Department of the Treasury, dated 6 December 2000.

11.4.1 - Flood package and GST - income support

Are the payments of income support and existing debt interest rate subsidies from the Federal Government Flood Package to farmers subject to GST?

Non-interpretative - straight application of the law

Answer

No.

Explanation

The payments of Income Support and Existing Debt Interest rate subsidies will not be subject to GST as the recipient is not making a taxable supply.

The recipient is merely satisfying eligibility requirements that will either ensure they are entitled to the payments or not. Although there may be some expectation that the money will be used for certain purposes (for example, paying back loans), there is no blinding obligation.

The payments by AFFA or Centrelink are therefore not consideration in return for a supply by the recipient. The recipient is therefore not making a taxable supply to the government in return for the payment and accordingly no GST is applicable to the transaction.

11.4.2 - Flood Package and GST - reimbursement

Are the payments of reimbursement grants for small business and crop replanting from the Federal Government Flood Package to farmers subject to GST?

Non-interpretative - straight application of the law

Answer

No.

Explanation

Payments of the Small Business Grant and the Crop Replanting Grant are not consideration for a taxable supply by the recipient and the grant will, therefore, not be subject to GST. The recipient has merely expended the money and is seeking reimbursement only.

11.5 Farm help

11.5.1 - GST on Farm Help Payments

Question

Will farmers be liable for GST on payments made under the Farm Help Income Support (formerly Restart Income Support) and the Farm Help Re-establishment Grant Scheme (formerly Restart Re-establishment Grant)?

For the source of the ATO view, refer to GSTR 2012/2 - Goods and services tax: financial assistance payments.

Answer

•: No. The Farm Help Income Support Scheme will not be consideration for a taxable supply.
•: No. The Farm Help Re-establishment Grant Scheme will not be consideration for a taxable supply.

Explanation

Payments made to farmers under either the Farm Help Income Support Scheme (FHIS) or the Farm Help Re-establishment Grant Scheme (FHRG) are considered to be grants of financial assistance. The GST treatment of grants is discussed in Goods and Services Tax Ruling GSTR 2000/11 Goods and Services Tax: grants of financial assistance.

Paragraph 97 of GSTR 2012/2 states:

'An entity that receives a financial assistance payment is liable for GST in respect of that payment if the payment is consideration for a supply and all the other requirements for a taxable supply are met.'

It is, therefore, necessary to determine whether farmers make a supply in relation to the payments under FHIS and the FHRG.

However, paragraph 119 of GSTR 2012/2 states:

'A further example of where there may be no supply is where an agreement between the parties is not binding and creates expectations alone. Where the financial assistance payment is made in circumstances where a party expects that something will be done, and it does not involve a binding obligation or the supply of goods, services or some other thing, there is no supply. The mere expectation that an act or event will happen is not sufficient to establish a supply.'

(a) Farm Help Income Support Scheme

The FHIS consists of payments from Centrelink to farmers. The payments are available to the farmers for up to twelve (12) months whilst the farmers are receiving professional advice on the future viability of their farm.

If farmers meet the eligibility criteria of the FHIS, there is an expectation that they will obtain professional advice on the viability of their farm business and future options. Farmers can receive up to $3,000.00 per family. These payments can include payments of up to $450.00 for travel costs and other costs associated with obtaining the advice. The seeking of professional advice is not a binding requirement. It is merely expected that the payment be used to obtain professional advice. As per paragraph 33 of GSTR 2000/11 the creation of an expectation does not establish a supply.

Therefore, any payments received in relation to the FHIS scheme will not represent consideration for taxable supply.

(b) Farm Help Re-establishment Grant Scheme

The FHRG payments are made to assist farmers who exit the farming industry and are paid by Centrelink. In order to be eligible for payment, the grant recipient must first qualify for FHIS. They are also required to have sold their farm and exited the farming industry. There is a requirement that the farmer is to remain outside the agricultural industry for five (5) years. If the recipient of the payment chooses to return to the industry, repayment of the FHRG will be sought.

The requirement to be excluded from an industry for a period of time is a restrictive covenant. If a restrictive covenant is enforced it will be a supply. However, under the FHRG program the farmers have already exited the industry and consequently the supply will not be made in the course or furtherance of an enterprise that they are carrying on. Therefore, it is considered that on this basis any obligation entered into in relation to the FHRG program will not constitute a taxable supply.

11.5.2 - Farm help/ farm restart scheme (PAYG and income Tax).

Does not relate to an indirect tax specific issue

Questions:

1. Income Support Payment

1.1 Will the Farm Help income support payment be assessable income to the recipient?

1.2 Is the Farm Help income support payment included in the instalment income of the recipient for PAYG instalments purposes?

1.3 Will the beneficiary rebate apply to the Farm Help income support payments?

1.4 Is the payment to be treated as income from primary production in applying the provisions of Division 392 ITAA97 - Long-term averaging of primary producers' tax liability?

2. Re-establishment Grant

2.1 Will the Farm Help re-establishment grant be assessable income to the recipient?

2.2 Will there be capital gains tax implications on the receipt of the Farm Help re-establishment grant?

2.3 Is the Farm Help re-establishment grant included in the instalment income of the recipient for PAYG instalments purposes?

Background

Program Name Change

The Farm Household Support Amendment Act 2000 changed the program name of the Farm Family Restart Scheme to the Farm Help Supporting Families Through Change program, which required the word 'restart' in the relevant legislation to be replaced with the words 'farm help'. Consequently the following refers to payments made under the Farm Help program. The payments made under the Farm Help Program are made by Centrelink under the Farm Household Support Act 1992.

Description of Program

The AAA - Farm Help - Supporting Families through Change program is one of a number of programs developed as a part of the Commonwealth Government's Agriculture - Advancing Australia (AAA) package. The scheme aims to provide:

•: financial assistance to farmers and their families who are experiencing financial hardship and who cannot borrow further against their assets;
•: tailored assistance to farm families to adjust and make decisions about their future in the industry;
•: access to skills retraining for an alternative career; and
•: access to professional advice on the future viability of their business and on employment opportunities if they choose to exit the industry.

This assistance allows farmers the choice of leaving the industry before their assets are severely depleted.

Types of Benefits Payable

Farm Help has four key components:

•: Income support payable for a maximum of 12 months at the Newstart Allowance rate with a partner component. Farmers who receive income support will be required to obtain professional advice on the farm's financial viability with three months of commencing payments.
•: A re-establishment grant of up to $45,000 which is payable when an eligible farmer leaves the farming industry. The grants are only available to farmers who applied for Farm Help before they sell their farm and before 30 November 2003. Farmers will generally then have 12 months to sell their farm subject to an assets test. Re-establishment grants are subject to an assets test on the sale of the farm. The grant will reduce by $2 for every $3 in assets in excess of $100,000. Any income support paid to farmers by Centrelink will also be deducted from the re-establishment grant.
•: An obligation to obtain professional advice on the future viability of the business, and career counselling where appropriate. Farm families will receive up to $3,000 (excluding GST) to obtain advice, and to help with any costs associated will obtaining advice such as travel or childcare. With the assistance of their Centrelink Farm Help contact, farmers and their families can undertake a 'Pathways Plan' which identifies their goals and how they may be achieved. The 'Pathways Plan' is compulsory for businesses assessed as nonviable.
•: A retraining grant of $3,500 is available to farmers and/or their partner who receive a re-establishment grant under the Farm Help program. Only one retraining grant is available for each re-establishment grant paid.

Farmers who have been on Farm Help Income Support for less than six months, and withdraw, are eligible to rejoin the program to complete their 12 months. Those who withdraw after six months cannot rejoin.

Answers and Explanation:

1. Income Support Payment

Question 1.1:

Will the Farm Help income support payment be assessable income to the recipient?

Answer:

The payment is generally assessable income to the recipient, however the portion if any, of the payment made for rental assistance, or remote area allowance would not be assessable and is treated as exempt income.

Explanation:

Sub-section 6-5(2) Income Tax Assessment Act 1997 (ITAA97) specifies that where a person is an Australian resident, the person's assessable income includes the ordinary income the person derives directly or indirectly from all sources, whether in or out of Australia, during the income year.

The income support is paid on a regular (fortnightly) basis by Centrelink at the Newstart Allowance rate. The payment is to provide financial assistance to farmers who are suffering hardship. It is considered that the income support payments are income according to ordinary concepts and therefore assessable under section 6-5 ITAA97.

Section 6-20 ITAA97 specifies that an amount of ordinary income or statutory income is exempt income if it is made exempt from income tax by a specific provision. As the payment is being made under the Farm Household Support Act 1992 (FHSA), section 53-10 Item 3 ITAA97 exempts the supplementary amount of the income support payment. Section 53-15 ITAA97 defines the supplementary amount as being so much of the payment, which is included by way of rental assistance and remote area allowance.

Question 1.2:

Is the Farm Help income support payment included in the instalment income of the recipient for PAYG instalments purposes?

Answer:

No, Farm Help income support payments are not included in the instalment income of the recipient for PAYG purposes.

Explanation:

As the Farm Help income support payment is a withholding payment under section 12-110 of Schedule 1 (TAA), the payment is specifically excluded from the instalment income of the recipient by subsection 45-120(3) of Schedule 1 (TAA).

Question 1.3:

Will the beneficiary rebate apply to the Farm Help income support payments?

Answer:

The beneficiary rebate will apply to the payments.

Explanation:

Amounts paid by way of exceptional circumstances relief payment or farm help income support under the FHSA are considered rebatable benefits as per sub-section 160AAA(1) Income Tax Assessment Act 1936 (ITAA36). Where a rebatable benefit is received, a beneficiary rebate calculated in accordance with the regulations is allowable (subsection 160AAA(3) ITAA36).

Question 1.4:

Is the payment to be treated as income from primary production in applying the provisions of Division 392 ITAA97 - Long-term averaging of primary producers' tax liability?

Answer:

The payment would not be treated as income from primary production.

Explanation:

In calculating the effect of the provisions of Division 392 ITAA97 on a primary producer's tax liability, the amount of assessable primary production income of the taxpayer is utilised. Subsection 392-80(2) ITAA97 defines assessable primary production income as the amount of assessable income that was derived from, or resulted from, your carrying on a primary production business.

The Farm Help income support payments are a welfare payment made to farmers suffering financial hardship. A farmer is defined in section 3 FHSA as a person who:

•: has a right or interest in the land used for the purposes of a farm enterprise; and
•: contributes a significant part of his or her labour and capital to the farm enterprise; and
•: derives a significant part of his or her income from the farm enterprise.

Even though a person needs to be a farmer to be eligible for the income support, it is considered that the payments are not derived from, or resulted from, carrying on a primary production business. Therefore the payments are considered not to be income from primary production for the purposes of Division 392 of the ITAA97.

2. Re-establishment Grant

Question 2.1:

Will the Farm Help re-establishment grant be assessable income to the recipient?

Answer:

The re-establishment grant is not assessable income to the recipient.

Explanation:

It is considered that the grant would not be assessable under 6-5 ITAA97, as the grant does not have the characteristics of ordinary income.

The payment is not received as part of the proceeds of the farming business, but rather, it is a once-off payment which is payable when an eligible farmer leaves the farming industry. It is considered that the payment is a capital receipt to the recipient.

Bounties and subsidies received in relation to carrying on a business which are not assessable as ordinary income, such as receipts of a capital nature, can be included in assessable income by section 15-10 ITAA97. As the payment is made to a farmer to leave the industry, it is considered that the payment is not received in relation to carrying on a business and therefore is not assessable under section 15-10 ITAA97.

Question 2.2:

Will there be Capital Gains Tax implications on the receipt of the Farm Help re-establishment grant?

Answer:

There are no capital gain implications in receiving a re-establishment grant.

Explanation:

Section 118-37 ITAA97 states that a capital gain or loss, that is made from a CGT event relating directly to a re-establishment grant under section 52A of the Farm Household Support Act 1992, is to be disregarded. The Farm Help re-establishment grant is paid under section 52A of the Farm Household Support Act 1992. Therefore any capital gain or loss from the CGT event will be disregarded.

Question 2.3:

Is the Farm Help re-establishment grant included in the instalment income of the recipient for PAYG instalments purposes?

Answer:

The Farm Help re-establishment grant is not included in the instalment income of the recipient.

Explanation:

Instalment income for a period generally includes gross ordinary income derived during that period, provided that the ordinary income is also included in assessable income for the income year to which the period belongs (section 45-120 of the TAA). As the payment of the Farm Help re-establishment grant does not represent ordinary income, this amount will not be included in the instalment income of the recipient.

For certain entities, amounts representing statutory income are also included in assessable income if it is reasonably attributed to that period and is assessable income of the year that is or includes that period. These entities include eligible Approved Deposit Funds, eligible superannuation funds and pooled superannuation trusts. Statutory income would include a net capital gain. However, as the receipt of the Farm Help re-establishment grant has no capital gains implications, this payment does not result in an amount of statutory income being included in assessable income.

Therefore, regardless of the type of entity in receipt of the payment, the Farm Help re-establishment grant would not be included in the instalment income of the recipient.

11.5.3 - Exceptional circumstances relief payments

Does not relate to an indirect tax specific issue

Questions:

Will the Exceptional Circumstances Relief Payment (relief payment) be assessable income to the recipient?

Will the exceptional circumstances relief payment be included in the instalment income of the recipient?

Will the beneficiary rebate apply to the Exceptional Circumstances Relief Payment?

Is the payment to be treated as income from primary production in applying the provisions of Division 392 ITAA 1997 - Long-term averaging of primary producers' tax liability?

Background:

Description of Program

The Exceptional Circumstances Relief Payment (ECRP) is delivered by Centrelink on behalf of the Department of Agriculture, Fisheries and Forestry - Australia. The payment provides assistance to farmers living in 'exceptional circumstances' affected area who are having difficulty meeting family and personal living expenses.

To qualify for Exceptional Circumstances Relief Payment, a person must:

•: be a farmer,
•: be over 18 years old,
•: be an Australian resident and living in Australia, and
•: hold a current Exceptional Circumstances certificate issued by the State Rural Adjustment Scheme Authority, which identifies that the farm enterprise is in an 'exceptional circumstances' affected area.

Description of Payment

Exceptional Circumstances Relief Payment is paid fortnightly at a rate equivalent to Newstart Allowance and, where applicable, Partner Allowance.

Payment is subject to the same income and assets tests applying to Newstart Allowance. However, the farm assets, including the farmer's superannuation and life insurance, are exempt from the assets test. Proceeds from the forced disposal of livestock due to exceptional circumstances are excluded from the income test. In this case, farmers will be required to deposit the proceeds from the forced sale in either a Farm Management Deposit or a deposit with a term of at least three months with a bank, building society, credit union or other institution that receives money on deposit.

Answer and Explanation

1. Will the Exceptional Circumstances Relief Payment (relief payment) be assessable income to the recipient?

Answer:

The payment is generally assessable income to the recipient, however the portion, if any, of the payment made for rent assistance or remote area allowance would not be assessable and is treated as exempt income.

Explanation:

Sub-section 6-5(2) Income Tax Assessment Act 1997 (ITAA 1997) specifies that where a person is an Australian resident, the person's assessable income includes the ordinary income the person derives directly or indirectly from all sources, whether in or out of Australia, during the income year.

The relief payment is paid on a regular (fortnightly) basis by Centrelink at the Newstart Allowance rate. The payment is to provide financial assistance to farmers who are suffering hardship. It is considered that the relief payments are income according to ordinary concepts and therefore assessable under section 6-5 ITAA 1997.

Section 6-20 ITAA 1997 specifies that an amount of ordinary income or statutory income is exempt income if it is made exempt from income tax by a specific provision. As the payment is being made under the Farm Household Support Act 1992 (FHSA), section 53-10 Item 3 ITAA 1997 exempts the supplementary amount of the income support payment. Section 53-15 ITAA 1997 defines the supplementary amount as being so much of the payment which is included by way of rental assistance and remote area allowance.

2. Will the exceptional circumstances relief payment be included in the instalment income of the recipient?

Instalment income generally includes ordinary income derived during the period, but only to the extent that it is assessable income of the income year that is or includes that period. However, instalment income excludes withholding payments (except those for non-quotation of a TFN or ABN). An entity must withhold an amount from a payment it makes to an individual under section 12-110 of Schedule 1, TAA if the payment is specified in section 53-10 of the ITAA 1997. Please note that this only applies to the portion of the amount excluding the supplementary amount (rent assistance or remote area allowance paid to an individual),

Hence, if the payment is made to an individual, the exceptional circumstances relief payment (including the supplementary amount) would not be included in the instalment income of the recipient. If the payment is made to another entity, the payment would be included in the instalment income of the recipient (excluding any supplementary amount).

3. Will the beneficiary rebate apply to the Exceptional Circumstances Relief Payment?

Answer:

The beneficiary rebate will apply to the payments.

Explanation:

Amounts paid by way of exceptional circumstances relief under the FHSA are considered rebatable benefits as per sub-section 160AAA(1) Income Tax Assessment Act 1936 (ITAA36). Where a rebatable benefit is received, a beneficiary rebate calculated in accordance with the regulations is allowable (subsection 160AAA(3)).

4. Is the payment to be treated as income from primary production in applying the provisions of Division 392 ITAA 1997 - Long-term averaging of primary producers' tax liability?

Answer:

The payment would not be treated as income from primary production.

Explanation:

In calculating the effect of the provisions of Division 392 ITAA 1997 on a primary producer's tax liability, the amount of assessable primary production income of the taxpayer is utilised. Subsection 392-80(2) ITAA 1997 defines assessable primary production income as the amount of assessable income that was derived from, or resulted from, your carrying on a primary production business.

The Exceptional Circumstances Relief Payment is a welfare payment made to farmers suffering financial hardship. Even though a person needs to be a farmer to be eligible for the income support, it is considered that the payments are not derived from, or resulted from, carrying on a primary production business. Therefore the payments are considered not to be income from primary production for the purposes of Division 392.

Further information on Division 392 application to ECRP is provided by ATO ID 2004/9 - Income Tax - Primary Production Exceptional Circumstances Relief Payment.

11.6 Landcare

11.6.1 - Can a number of small landcare groups get together as one large group and apply for one ABN?

Does not relate to an indirect tax specific issue.

Where each small group is a separate entity, they may be permitted to group, but will have to register for an ABN and GST individually. Once they have received their individual ABN and GST registrations, they may complete a single group registration form provided they satisfy the grouping rules. For further information refer to Part 1 - ABN and GST registration of the Charities consultative committee resolved issues document.

11.6.2 - If a landcare entity receives a grant of just over $75,000 a year, does the entity have to register for the GST?

Non-interpretative - straight application of the law

The entity must register if it is carrying on an enterprise and its GST turnover is at or above $75,000 (or $150,000 if the entity is a non-profit organisation). If the entity's GST turnover is less than the relevant threshold, then registration is a matter of choice.

11.6.3 - If a landcare entity's turnover is below the GST registration threshold, and it chooses not to register for GST, does the landcare entity still need an ABN?

Does not relate to an indirect tax specific issue

Generally, where an entity which is carrying on an enterprise does not quote an ABN to a payer then the pay as you go (PAYG) withholding system requires the payer to withhold 46.5% of the payment and remit these monies to the ATO, unless one of the general exceptions apply. One of these exceptions are that where the whole payment is exempt income of the payee then there is no requirement for the payer to withhold an amount from a payment to the payee where the payee has not quoted an ABN.

Therefore, if a landcare entity is a tax exempt entity for income tax purposes and chooses not to apply for an ABN then payments made to the landcare entity may be excluded from the PAYG withholding system, if the whole payment is exempt income of the landcare entity.

11.6.4 - If a landcare entity makes arrangements for another organisation (for example, local council) to be the designated funding manager, does that landcare entity need to have an ABN and/or register for the GST?

Non-interpretative - other references (see Part 14 - Conservation of the Charities consultative committee resolved issues document).

The registration rules referred to at the answer for question 2 above, still apply to the landcare entity regardless of the funding management arrangement.

11.6.5 - Will not-for-profit Landcare groups be able to claim back any GST they pay on goods such as fencing?

Non-interpretative - straight application of the law

Provided the landcare group is registered for GST, and acquires the fencing in the course of their enterprise, they will be entitled to claim an input tax credit for GST paid.

Further information can be found at question 17 in Part 14 (Conservation) of the Charities consultative committee resolved issues document.

11.6.6 - What are the GST consequences of the following events:

•: A grant is paid under an agreement for the period 1 July 1999 to 30 June 2000. The agreement stipulates that any monies that remain unspent as at 30 June 2000 must be refunded to the government unless alternative arrangements are made, and
•: Agreement is reached whereby the grantee will be able to spend the excess funds in the 2001 financial year.

Non-interpretative - straight application of the law

The above arrangements would have the following effects:

A.: There is a reduction in the consideration payable in respect of the agreement for the period 1 July 1999 to 30 June 2000. This in itself has no GST consequences, as it relates to pre GST supplies.
B.: There is a new agreement for the period 1 July 2000 onwards. Under this new agreement, the grant recipient is agreeing to spend the monies carried over from the 2000 financial year. This new undertaking by the grant recipient is subject to GST as it relates to the period after 1 July 2000.
C.: The new agreement is accounted for under Division 156 of the GST Act, which treats each progressive or periodic component of the supply as a separate supply.
D.: Each component of the supply under the agreement will be accounted for at the earlier of receiving the cash or providing the service. In this instance, the grant monies have already been paid by the government body to the grant recipient. Therefore, the grant recipient would be required to account for the GST on all supplies under the new agreement in the first period after 1 July 2000.

11.6.7 - What are the GST implications where a landholder provides services to the landcare entity and receives payment in return?

Non-interpretative - straight application of the law

If the landholder is registered for GST, and the other elements of a taxable supply are satisfied, the supply of services will be subject to GST.

11.6.8 - What are the pay as you go (PAYG) Withholding tax requirements where the landcare entity does not quote an ABN to the payer of grant monies?

Does not relate to an indirect tax specific issue

If an entity carrying on an enterprise does not quote an ABN, the payer would normally be required to deduct 46.5% of the grant monies and forward the amount deducted to the Commissioner of Taxation. However, where the monies are income tax exempt in the hands of the recipient, the payer of the grant is not required to deduct tax where an ABN is not quoted. For record keeping purposes it is advisable for the payer of the grant to ask the payee to complete a 'Statement by a Supplier' form (reason for not quoting an ABN to an enterprise).

11.6.9 - What are the pay as you go (PAYG) Withholding tax requirements where a landholder does not quote an ABN to the landcare entity?

Does not relate to an indirect tax specific issue.

If the landholder is conducting an enterprise, and does not quote an ABN, the entity would be required to withhold 46.5% of any payments made.

If the landholder is conducting a hobby, PAYG withholding is not applicable. The landholder would merely provide a letter to the effect that his/her activity was only a hobby. If in doubt, the landcare organisation should ask the landholder to complete a 'Statement by a Supplier' form confirming that the landholder's activities are merely a hobby.

11.6.10 - What can the entity do if it has inadequate accounting systems, and cannot afford to update them?

Does not relate to an indirect tax specific issue

The ATO has field officers available to help taxpayers such as landcare entities understand GST.

11.6.11 - Is a landcare group entitled to obtain an ABN?

Does not relate to an indirect tax specific issue.

The issue of whether a landcare group is able to obtain an ABN is largely dealt with in Miscellaneous Taxation MT 2006/1 which discusses the meaning of 'entity carrying on an enterprise' for the purposes of entitlement to an ABN.

The first step in determining eligibility for an ABN is to ascertain whether a landcare group is an entity.

It would appear clear that in the majority of situations, a landcare group is an entity. The term 'entity' includes an 'unincorporated association of persons'. Paragraphs 55-58 of MT 2006/1 provide an example of 'unincorporated associations of persons' that has a membership, a committee, a system of rules, and an understanding between the members of their rights, privileges and responsibilities. Paragraph 47 of MT 2006/1 states that the term 'body of persons' may be seen as consisting of a group of persons who associate to achieve a common aim or purpose and who are bound by mutual obligations and rights.

The second requirement that a landcare group must satisfy in order to obtain an ABN is that they are carrying on an enterprise.

The term 'enterprise' is defined in section 38 of the A New Tax System (Australian Business Number) Act 1999 (ABN Act), and includes an activity or series of activities, done by a charitable institution or by a trustee of a charitable fund. Where a landcare group is a charitable institution etc. they are not required to be carrying on a business in order to obtain an ABN.

A discussion of whether conservation bodies (including landcare groups) can qualify as charitable institutions appears in Part 16 of the Charities consultative committee resolved issues document.

Generally speaking, there are two main types of landcare group that could miss out on being considered a charity. The first is groups that are in fact government bodies. The second is where the primary activities of the landcare group are other than charitable - political lobbying would not be charitable for example. Government bodies are not required to be in business in order to obtain an ABN - they must merely be conducting activities. Landcare groups that have the main purpose of lobbying may in any event be able to contend their activities amount to a business. Importantly, only an individual or partnership is prohibited from obtaining an ABN where there is no reasonable expectation of profit.

11.7 Under and over passes

11.7.1 - Reimbursement grant from RIDF - GST status

Question

Is the payment of a reimbursement grant from the Victorian Rural Infrastructure Development Fund (RIDF) to farmers for the completion of a stock under/overpass subject to GST?

For the source of the ATO view, refer to paragraphs 108 to 190 of GSTR 2000/11 - Goods and services tax: grants of financial assistance

Answer

No.

Background

A total of $4 million has been made available from the Rural Infrastructure Development Fund (RIDF), established under the Bracks Government's Reviving Rural and Regional Victoria policy for the installation of stock under/overpasses.

The installation of stock under/overpasses has been a key concern for members of the Victorian Farmers' Federation (VFF), in particular those involved in the dairy industry for many years. The provision of this funding is intended to facilitate the installation of stock under/overpasses improving the safety of farming families and their employees who regularly take stock across arterials and also the safety of rural roads for the motoring public. The installation is not compulsory nor is there public access to these stock under/overpasses.

The VFF is administering this funding on behalf of the Department of State and Regional Development.

The RIDF has directed that funding for each under/overpass will be to a maximum of $20,000 and applied on a dollar for dollar basis. For example, if the under/overpass is valued at $50,000 the maximum contribution will be $20,000. If the project is valued at $32,000 the maximum contribution will be $16,000. Funding is available for stock under/overpasses on any road or rail line. It is not available for channel crossings.

Construction must have commenced after 17 June 2000. Funding is not retrospective prior to this date. Funds will be received when the stock under/overpass is completed. This will need to be verified by a final inspection report issued by an authorised officer of either Vic Roads, Council or the Rail Authority. Original copies of receipts for construction costs will need to be provided.

Eligible costs include - laneway construction including cost of fencing materials and the material for the laneway surface back to the boundary fence, electricity connection, pumps, plumbing/drainage costs, signage, construction, road resurfacing and guard rails whether these are provided by the farmer or a supplier.

Costs associated with the farmer's contribution to the under/overpass cost for example, finance expenses and ongoing maintenance expenses are not eligible.

Explanation

The Australian Taxation Office understands that the installation of stock under/overpasses in Victoria is intended to improve the safety of farming families and their employees who regularly take stock across public roads this in turn makes these roads safer for motorists.

These structures are installed on private property and have no public access. The building of these structures is not compulsory and the funds are only received when the stock under/overpass is completed.

Generally, where a grant is paid for a specific purpose or subject to conditions, this will be treated as a payment by the recipient for a supply. This would also apply if the grant reimburses the recipient for expenses which the recipient has already incurred. Grants may be consideration for the supply of information in the grant application or, in some cases, the giving up of a recipient's right to reimbursement.

However, in the case of the reimbursement grant for stock over/under passes there are no binding obligations. Therefore, the reimbursement grant is not consideration for a supply made by the recipient (Sections 9-5 and 9-15 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)).

For further information see paragraphs 108-109 of Goods and Services Tax Ruling

11.8 Sugar

Note: This information has not been updated to take into account the Sugar Industry Reform Program 2004 that was announced by the Prime Minister, the Hon John Howard MP, on the 29 April 2004.

11.8.1 - Sugar Industry Assistance Package - GST treatment

This issue is no longer relevant as the Sugar Industry Assistance Package was a short term measure which has ended.

Non-interpretative - other references (see Paragraphs 89 to 100 of Goods and Services Tax Ruling GSTR 200R 2000/11 - Goods and service tax: grants of financial assistance.

Question

Are payments to canegrowers under the Sugar Industry Assistance Package subject to GST?

Answer

No. Payments under the Sugar Industry Assistance Package do not represent consideration for supplies made by canegrowers. Therefore, payments to canegrowers under the Package will not be subject to GST.

Background

The package was announced by the Federal Agriculture minister on 1 September 2000 as including:

•: significant interest subsidies on loans of up to $50,000 used to plant cane crops this and next season;
•: interest subsidies on new or existing loans of up to $100,000 associated with the business of producing cane;
•: family relief payments from 1 September to assist cane farmers and their families;
•: vouchers of up to $1,000 per farmer to access financial counselling services, where these services are not already provided

Explanation

The payments and the benefits provided are in the nature of assistance, and not consideration for any supplies made by the growers.

Although canegrowers must complete an application form in order to establish their eligibility for the interest subsidies, family relief payments, or financial counselling vouchers, made available by the government, these benefits are not consideration for the supply of the information in the application form. Rather, the benefits are paid to assist the canegrowers maintain their businesses. Paragraphs 89 to 100 of discuss supplies of information required to establish eligibility for financial assistance.

11.8.2 Sugar Industry Assistance Package - BAS issues

This issue is no longer relevant as the Sugar Industry Assistance Package was a short term measure which has ended.

Non-interpretative

Question

Should payments made to sugar cane farmers under the Interest Rate Subsidy scheme, which is part of the Sugar Industry Assistance Package, be included at G1 on the farmer's business activity statement (BAS)?

Answer

No. The payments to sugar cane farmers under the Sugar Industry Assistance Package will not be included at G1 on the BAS. The Sugar Industry Assistance Package payment should, however, be included at T1.

Explanation

As explained in the BAS instructions at page 34, G1 (total sales and income and other supplies) is used to include all the payments and other consideration (including GST) received during the current tax period for supplies made in the course of business. As the payment of the subsidy is not consideration for a supply, it will not be included on the recipient's BAS at G1.

As the interest rate subsidy is paid to assist farmers plant cane in their cane farming business, it is considered that the interest rate subsidy is ordinary income and therefore is included in the instalment income of the recipient for the purposes of PAYG. The interest rate subsidy should be included on the recipient's BAS at T1.

For further information on the Sugar Industry Assistance Package, visit the Centrelink website.

11.8.3- Sugar Industry Assistance Package - income tax and PAYG questions

This issue is no longer relevant as the Sugar Industry Assistance Package was a short term measure which has ended.

Does not relate to an indirect tax specific issue Questions

1. Interest Rate Subsidy (on loans used for planting cane crops)

1.1 Will the interest rate subsidy be assessable?

1.2 Is the receipt of the subsidy considered instalment income for the purposes of the pay as you go (PAYG) instalments system?

1.3 Is the payment to be treated as income from primary production in applying the provisions of Division 392 - Long-term averaging of primary producers' tax liability?

1.4 Are there any Capital Gains Tax implications from receiving the interest rate subsidy?

2. Interest Rate Subsidy (loans associated with the business of producing cane)

2.1 Will the interest rate subsidy be assessable?

2.2 Is the receipt of the subsidy considered instalment income for the purposes of the pay as you go (PAYG) instalments system?

2.3 Is the payment to be treated as income from primary production in applying the provisions of Division 392 - Long-term averaging of primary producers' tax liability?

2.4 Are there any capital gains tax implications from receiving the interest rate subsidy?

3. Income Support Payment

3.1 Will the income support payment under the Sugar Industry Assistance Package be assessable income to the recipient?

3.2 Will the income support payment under the Sugar Industry Assistance package be included in the instalment income of the recipient?

3.3 Will the beneficiary rebate apply to the income support payments?

3.4 Is the payment to be treated as income from primary production in applying the provisions of Division 392 ITAA 1997 - Long-term averaging of primary producers' tax liability?

4. Vouchers to access financial counselling services

4.1 Will the provision of the voucher be considered assessable income to the recipient?

Background

Description of Program

The package includes:

•: Interest subsidies on loans of up to $50,000 used to plant cane crops in the 2000-01 and 2001-02 seasons;
•: Interest subsidies on new and existing loans of up to $100,000 associated with the business of producing cane;
•: Income support payments from 1 September 2000 to assist cane farmers and their families; and
•: Vouchers of up to $1,000 per farmer to access financial counselling services, where these services are not already provided.

Applicants will need to be an eligible cane grower. That is, the applicant must:

•: have been a cane grower for at least 2 years immediately prior to lodging the claim;
•: have a right or interest in the land used for the purposes of a sugar industry enterprise:

and meet two of the following criteria:

•: contribute the majority of his/her labour to the cane farm enterprise;
•: contribute the majority of his/her capital to the cane farm enterprise; and
•: derive the majority of their income from cane farming.

Answers and explanation

1. Interest Rate Subsidy (on loans used for planting cane crops) -

Description of payment

The interest rate subsidies are available on loans of up to $50,000 to be used to meet expenses necessary for replanting crops in 2000/01 and 2001/02.

The support will help cane growers access funds needed to either plant or replace diseased cane.

Question 1.1

Will the interest rate subsidy be assessable?

Answer

The receipt of the subsidy would be treated as a receipt of assessable income.

Explanation

The assessable income of a taxpayer includes a subsidy that is received in relation to carrying on a business and the subsidy is not assessable as ordinary income (section 15-10 Income Tax assessment Act 1997 (ITAA 1997)).

The interest rate subsidy is paid to assist continuing farmers to plant or replace diseased cane crops.

As the subsidy assists cane farmers to pay the interest payments on loans made to plant sugar cane, and there is a close relationship between the interest payments and the carrying on of a business on the farm, it is considered that the receipt of the subsidy is in relation to the carrying on of a business. Therefore the subsidy will be assessable as per section 15-10 ITAA 1997, if the subsidy is not assessable as ordinary income as per section 6-5 ITAA 1997.

If the subsidy is provided as an ordinary incident of carrying on a primary production business, the subsidy could be considered income according to ordinary concepts under section 6-5 ITAA 1997.

It is considered that the subsidy is assessable under sections 6-5 ITAA 1997 [see reasons to answer question 2, immediately below].

Question 1.2

Is the receipt of the subsidy considered instalment income for the purposes of the Pay As You Go (PAYG) instalments system?

Answer

Yes, it would be included in the instalment income of the recipient.

Explanation

'Instalment income' is defined in section 45-120 of Schedule 1 Taxation Administration Act 1953 (TAA) to mean ordinary income derived during the period, but only to the extent that it is assessable income of the income year that is or includes that period. Ordinary income is defined in section 995-1 ITAA 1997 as having the meaning given by section 6-5 ITAA 1997.

For most farm enterprises, income assessable under section 15-10 ITAA 1997 is not considered instalment income.

However if the subsidy is assessable under section 6-5 ITAA 1997, the income is ordinary income and would be considered instalment income.

Therefore it is important to determine whether the payment is ordinary income or not.

Given the frequency of adverse natural events which affect farmers and given that disaster relief is now becoming increasingly available to affected farmers, one may argue that the assistance provided is an ordinary incident of carrying on a primary production business. As such the subsidy could be considered income according to ordinary concepts.

The question whether or not a subsidy can be regarded as being ordinarily incidental to or arising out of the carrying on of a farming business was looked at in the Administrative Appeals Tribunal case 92 ATC 225.

In that case, the taxpayer was a member of a cane-farming partnership which purchased a farm with the help of a $293,000 loan from the Queensland Industry Development Corporation (QIDC). The partnership also obtained $33,310 from QIDC under the Sugar Industry Assistance Scheme (SIA Scheme). The money was used to reduce the QIDC loan. The amount under the SIA Scheme was calculated as the equivalent in present value terms to an interest subsidy of up to 50% of an agreed rate over a seven-year loan term (the maximum term). If the members of the partnership continued to be cane farmers throughout that seven-year period, and the conditions of the Scheme were complied with, the assistance would be converted into a non-repayable grant. In certain circumstances, however, the assistance was refundable, in which case the partnership would be required to refund the initial lump sum paid, reduced by one-seventh for each year, or part of a year, elapsed since the assistance was first provided.

It was held that the assistance under the SIA Scheme was a conditional loan which became in part a grant or subsidy year-by-year to the extent that it ceased to be repayable. On each anniversary, when one-seventh of the assistance became non-repayable, that one-seventh assumed the mantle of income by way of a grant. It was derived at that point in time and thus became assessable income. As the assistance was provided so that the partnership could better service the QIDC loan, the assistance was income according to ordinary concepts and thus assessable under sec 25(1) ITAA36 (the predecessor of section 6-5). The one-off nature of the payment did not prevent it from being income.

Taxation Determination TD 98/28 looked at grants received by small business from the Commonwealth Government Gas Emergency Assistance Fund. It was determined that the payments are either assessable as income according to ordinary concepts or, being a bounty or subsidy, specifically assessable as statutory income under section 15-10 ITAA 1997.

Question 1.3

Is the payment to be treated as income from primary production in applying the provisions of Division 392 - Long-term averaging of primary producers' tax liability?

Answer

It is considered that the payment would be treated as income from primary production.

Explanation

The payment is based on the interest paid on loans used to plant cane crops. It is considered that the payments are derived from, or resulted from, carrying on a primary production business of cane farming. Therefore the payments are considered to be income from primary production for the purposes of Division 392.

Question 1.4

Are there any capital gains tax implications from receiving the interest rate subsidy?

Answer

No, capital gains tax will not apply.

2. Interest Rate Subsidy (loans associated with the business of producing cane)

Description of payment

The general interest rate subsidies are available on new loans or restructuring of existing loans up to a maximum of $100,000, for cane growers to support the business of growing cane.

The purpose of the loan cannot include new capital purchases, but past capital expenses will be acceptable as part of restructuring existing loans.

The subsidies will be paid up-front (each year for next two years) directly to the loan account of the customer.

There can be only one claim per farm enterprise or individual.

The interest rate subsidy is subject to an off-farm assets test (limit $189,500 excluding bona fide superannuation and life insurance policies)

Question 2.1

Will the interest rate subsidy be assessable?

Answer

The receipt of the subsidy would be treated as a receipt of assessable income.

Explanation

The assessable income of a taxpayer includes a subsidy that is received in relation to carrying on a business and the subsidy is not assessable as ordinary income (section 15-10 ITAA 1997).

The interest rate subsidy is being paid to assist cane growers in their business of growing cane.

As the subsidy assists cane farmers to pay the interest payments on loans made as part of the cane growing business, and there is a close relationship between the interest payments and the carrying on of a business on the farm, it is considered that the receipt of the subsidy is in relation to the carrying on of a business. Therefore the subsidy will be assessable as per section 15-10 ITAA 1997, if the subsidy is not assessable as ordinary income as per section 6-5 ITAA 1997.

If the subsidy is provided as an ordinary incident of carrying on a primary production business, the subsidy could be considered income according to ordinary concepts under section 6-5 ITAA 1997.

It is considered that the subsidy is assessable under sections 6-5 ITAA 1997 [see answer to question 2, immediately below].

Question 2.2

Is the receipt of the subsidy considered instalment income for the purposes of the Pay As You Go (PAYG) instalments system?

Answer

Yes, it would be included in the instalment income of the recipient.

Explanation

'Instalment income' is defined in section 45-120 of Schedule 1 TAA to mean ordinary income derived during the period, but only to the extent that it is assessable income of the income year that is or includes that period. Ordinary income is defined in section 995-1 ITAA 1997 as having the meaning given by section 6-5 ITAA 1997.

For most farm enterprises, income assessable under section 15-10 ITAA 1997 is not considered instalment income.

However if the subsidy is assessable under section 6-5 ITAA 1997, the income is ordinary income and would be considered instalment income.

Therefore it is important to determine whether the payment is ordinary income or not.

As the interest rate subsidy is paid to assist farmers carry on a business of cane farming, it is considered that the interest rate subsidy is ordinary income as per section 6-5 ITAA 1997 and would therefore be included in the instalment income of the recipient for the purposes of PAYG.

Question 2.3

Is the payment to be treated as income from primary production in applying the provisions of Division 392 - Long-term averaging of primary producers' tax liability?

Answer

It is considered that the payment would be treated as income from primary production.

Explanation

The payment is based on the interest paid on loans used in carrying on a business of cane farming. As such, it is considered that the payments are derived from, or resulted from, carrying on a primary production business of cane farming. Therefore the payments are considered to be income from primary production for the purposes of Division 392.

Question 2.4

Are there any Capital Gains Tax implications from receiving the interest rate subsidy?

Answer

No, Capital Gains Tax will not apply.

3. Income Support Payment

Description of the payment

The income support payment will be paid fortnightly at a rate equivalent to the maximum rate of Newstart Allowance and Rent Assistance if applicable.

The payment will be subject to an income and assets test similar to that applied under the Newstart Allowance guidelines, however, farm assets will be excluded from the assets test.

Income will include an estimate of the 2000-01 farming income and all off-farm income.

Question 3.1

Will the income support payment under the Sugar Industry Assistance Package be assessable income to the recipient?

Answer

The payment is assessable income to the recipient.

Explanation

Sub-section 6-5(2) Income Tax Assessment Act 1997 ITAA 1997 specifies that where a person is an Australian resident, the person's assessable income includes the ordinary income the person derives directly or indirectly from all sources, whether in or out of Australia, during the income year.

Section 6-20 ITAA 1997 specifies that an amount of ordinary income or statutory income is exempt income if it is made exempt from income tax by a specific provision.

Where a payments is made under the Farm Household Support Act 1992 (FHSA), section 53-10 Item 3 ITAA 1997 exempts the supplementary amount of the income support payment. Section 53-15 ITAA 1997 defines the supplementary amount as being so much of the payment which is included by way of rental assistance and remote area allowance.

However the Sugar Industry Assistance Package income support payment is not made under the FHSA but rather it is made under ministerial grants using guidelines akin to the exceptional circumstances relief payments or farm help income support payments under the FHSA. Therefore the supplementary amount will not be exempted and remains assessable income.

Question 3.2

Will the income support payment under the Sugar Industry Assistance package be included in the instalment income of the recipient?

Answer

As noted above, the income support payment under the Sugar Industry package represents ordinary income of the recipient. This payment would therefore be included in the instalment income of the recipient.

Question 3.3

Will the beneficiary rebate apply to the income support payments?

Answer

The beneficiary rebate will not apply to the payments.

Explanation

The payment is not included in the definition of rebatable benefits as per sub-section 160AAA(1) Income Tax Assessment Act 1936 (ITAA36). Therefore a beneficiary rebate is not allowable on the payment (subsection 160AAA(3)).

Question 3.4

Is the payment to be treated as income from primary production in applying the provisions of Division 392 ITAA 1997 - Long-term averaging of primary producers' tax liability?

Answer

The payment would not be treated as income from primary production.

Explanation

4. Vouchers to access financial counselling services -

Description of payment

All eligible cane growers accessing the Sugar Industry Package, who do not have ready access to financial counselling services will be eligible to receive a $1,000 voucher to assist in accessing these services.

Question 4.1

Will the provision of the voucher be considered assessable income to the recipient?

Answer

Where the counselling services are directly related to the cane farming business, the provision of the voucher would represent assessable income to the recipient. However, where the financial counselling relates to the personal financial circumstances of the recipient, it would not be considered assessable income to the recipient.

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