Senate

Revised Explanatory Memorandum

Circulated by the authority of the Treasurer, the Hon Wayne Swan MP

Chapter 10 Tax-free grants for certain tobacco growers

Outline of chapter

20.1 Schedule 10 to this Bill amends the Income Tax Assessment Act 1997 (ITAA 1997) to provide tax-free grants, under the Tobacco Growers Adjustment Assistance Programme 2006, to tobacco growers who undertake to exit all agricultural enterprises for at least five years.

Context of amendments

20.2 On 26 October 2006, the then Minister for Agriculture, Fisheries and Forestry announced that tobacco growers will receive up to $150,000 from the Australian Government to assist them to move into alternative business activities.

20.3 Generally, government grants paid to assist businesses to exit an industry are assessable under the capital gains tax (CGT) provisions, rather than as ordinary or statutory income.

20.4 The former Government decided to make the grants tax free for those tobacco growers who undertake to exit all agricultural enterprises for at least five years.

Summary of new law

20.5 This measure amends:

•

section 53-10 of the ITAA 1997 to list the Tobacco Growers Adjustment Assistance Programme 2006 grant as exempt income; and

•

subsection 118-37(1) of the ITAA 1997 to exempt the Tobacco Growers Adjustment Assistance Programme 2006 grant from CGT for Tobacco Growers Adjustment Assistance Programme 2006 grant recipients who fulfil certain conditions.

Detailed explanation of new law

The Tobacco Growers Adjustment Assistance Programme 2006 grant as exempt income

20.6 Section 53-10 of the ITAA 1997 lists various payments which are wholly or partly exempt from income tax. The exemptions may be subject to certain conditions as listed within the section.

20.7 The amendment to section 53-10 of the ITAA 1997 ensures that the Tobacco Growers Adjustment Assistance Programme 2006 grant is exempt from income tax. [ Schedule 10, item 3, section 53-10 ]

20.8 This exemption only applies to those recipients who undertake to exit all agricultural enterprises for at least five years. This provides certainty for those grant recipients who qualify for the exemption.

The Tobacco Growers Adjustment Assistance Programme 2006 grant is exempt from CGT

20.9 Subsection 118-37(1) of the ITAA 1997 lists various payments for which capital gains and losses are disregarded for tax purposes.

20.10 The amendment to subsection 118-37(1) of the ITAA 1997 ensures that the Tobacco Growers Adjustment Assistance Programme 2006 is exempt from CGT. [ Schedule 10, item 4, subsection 118-37(1 )]

20.11 This exemption only applies to those recipients who undertake to exit all agricultural enterprises for at least five years.

Application and transitional provisions

20.12 This measure applies to the 2006-07 and later income years. [ Schedule 10, item 5 ]

Consequential amendments

20.13 A reference to the Tobacco Growers Adjustment Assistance Programme 2006 grant is added to the table in section 11-15 of the ITAA 1997. [ Schedule 10, item 2 ]

20.14 The reference to 'sugar industry exit grants' is shifted from section 11-10 to section 11-15 of the ITAA 1997. [ Schedule 10, items 1 and 2 ]