House of Representatives

Explanatory Memorandum

Circulated By the Authority of the Treasurer, the Hon Wayne Swan MP)

Chapter 5 - Income Recovery Subsidy for the North Western Queensland floods

Outline of chapter

5.1 Schedule 5 to this Bill amends the Income Tax Assessment Act 1997 (ITAA 1997) to ensure that the Income Recovery Subsidy for the North Western Queensland floods is exempt from income tax and to ensure the Subsidy is not included in 'separate net income' for the purposes of calculating an entitlement to certain tax offsets.

Context of amendments

5.2 The Income Recovery Subsidy for the North Western Queensland floods was announced as an emergency measure by the Minister for Families, Housing, Community Services and Indigenous Affairs in Parliament on 25 February 2009.

5.3 The Income Recovery Subsidy is available to Australian residents over 16 years of age, who have experienced a loss of income as a direct result of the North Western Queensland Floods.

5.4 The Subsidy will compliment the range of services, payments and assistance already available to those affected by these floods.

5.5 This measure will retrospectively exempt from income tax, payments made in the 2008-09 income year. The payment could be claimed after 24 February 2009.

5.6 Such payments would also normally be included in the calculation of 'separate net income'. The calculation of separate net income can affect a taxpayer's eligibility for certain tax offsets.

5.7 Exempting these payments from income tax and separate net income will lessen the financial hardship experienced by those individuals and communities affected by the North Western Queensland floods of January and February 2009.

Summary of new law

5.8 This measure provides that no income tax will be paid by recipients on the receipt of the Income Recovery Subsidy in respect to the North Western Queensland Floods. This measure will apply retrospectively for the 2008-09 income year.

5.9 This measure amends:

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subsection 159J(6) of the Income Tax Assessment Act 1936 (ITAA 1936) (as it existed prior to 1 July 2009) to exclude the Income Recovery Subsidy from the definition of 'separate net income'; and

•

section 51-30 of the ITAA 1997 to list the Income Recovery Subsidy as exempt from income tax.

Comparison of key features of new law and current law

Detailed explanation of new law

Exclude the Income Recovery Subsidy from the definition of separate net income

5.10 Section 159J of the ITAA 1936 (as it existed prior to 1 July 2009) provides that a taxpayer may be eligible to an offset of tax when they contribute to the maintenance of a dependant person, but that the amount of that offset will be reduced as a dependant's separate net income increases.

5.11 The amendment to subsection 159J(6) of the ITAA 1936 will exclude the Income Recovery Subsidy from the definition of separate net income. [Schedule 5, item 1]

5.12 The amendment will mean that an individual otherwise entitled to an offset under section 159J of the ITAA 1936, will still be entitled to the same offset, despite any Income Recovery Subsidy received by their dependants.

Exempt the Income Recovery Subsidy from income tax

5.13 Section 51-30 of the ITAA 1997 lists welfare recipients and payments that are exempt from income tax.

5.14 The amendment to section 51-30 of the ITAA 1997 will make the Income Recovery Subsidy exempt from income tax. [Schedule 5, item 3, item 5.4 in the table in section 51-30]

5.15 Section 11-15 of the ITAA 1997 is an index of income which is exempt from income tax only if it is derived by certain entities. This index will be amended to include the Income Recovery Subsidy as an exempt payment. [Schedule 5, item 2, section 11-15]

Application and transitional provisions

5.16 This measure applies retrospectively for the 2008-09 income year.

5.17 As such, these payments will be subject to the provisions of the ITAA 1997 dealing with amounts of exempt income.