Senate

Revised Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello MP)

Chapter 2 Cyclones Larry and Monica: Assistance for affected businesses

Outline of chapter

2.1 Schedule 2 to this Bill provides tax-free status for Australian Government payments to businesses adversely affected by Cyclone Larry. These include the Cyclone Larry Business Assistance Fund payments and payments for fuel excise relief.

2.2 Schedule 2 to this Bill also provides tax-free status for Australian Government payments to businesses adversely affected by flooding due to the combined impacts of Cyclones Larry and Monica.

Context of amendments

General

2.3 Generally, government assistance payments are treated as assessable income, as either 'ordinary income' under section 6-5, or 'subsidies' or 'bounties' under section 15-10 of the Income Tax Assessment Act 1997 .

Cyclone Larry Business Assistance Fund

2.4 On 22 March 2006, the Prime Minister announced payments of $10,000 for businesses adversely affected by Cyclone Larry. Those businesses that can demonstrate significant losses can receive up to $25,000. These payments are to be paid out of the Cyclone Larry Business Assistance Fund.

Cyclones Monica and Larry Business Assistance Fund

2.5 On 26 May 2006, The Prime Minister announced payments of $10,000 for businesses adversely affected by flooding due to the combined impacts of Cyclones Larry and Monica. Those businesses that can demonstrate significant losses can receive up to $25,000.

Fuel excise relief

2.6 On 26 March 2006, the Prime Minister announced that any excise paid on diesel or petrol fuel used by businesses for generating their own electricity until normal services are restored are to be reimbursed by the Government.

Detailed explanation of new law

2.7 This measure defines payments made under the Cyclone Larry Business Assistance Fund, Cyclones Monica and Larry Business Assistance Fund, and fuel excise relief programme as non-assessable, non-exempt income. This has the effect of exempting such income from tax while avoiding other interactions with taxation law.

2.8 A range of financial assistance measures have been provided for those adversely affected by Cyclone Larry or adversely affected by flooding due to the combined impacts of Cyclones Larry and Monica. However, this measure only applies to payments made to businesses by the Australian Government, and made directly under the Cyclone Larry Business Assistance Fund, the Cyclones Monica and Larry Business Assistance Fund, or the fuel excise relief programme.

2.9 The fuel excise relief programme has components relating to businesses as well as households. This measure only deals with those relating to businesses. [Schedule 2, item 1, paragraph 1(1)(b)]

Application and transitional provisions

2.10 This measure applies to the 2005-06 and 2006-07 income years. [Schedule 2, item 1, subsection 1(1)]