House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)

Chapter 1 Tax exemption for the Disaster Income Recovery Subsidy

Outline of chapter

1.1 Schedule 1 to this Bill amends the Income Tax Assessment Act 1997 (ITAA 1997) to exempt from income tax the Disaster Income Recovery Subsidy paid to those affected by the floods that occurred in Australia on or after 29 November 2010 and those affected by Cyclone Yasi.

Context of amendments

1.2 The Disaster Income Recovery Subsidy provides financial assistance to employees, small business persons and farmers who can demonstrate they have experienced a loss of income as a direct consequence of the flooding and severe weather that occurred in Australia on or after 29 November 2010.

1.3 The Prime Minister announced the Disaster Income Recovery Subsidy on 10 January 2011.

1.4 The Disaster Income Recovery Subsidy is administered by Centrelink, and is equivalent to the maximum rate of the Newstart allowance depending on the person's circumstances.

1.5 A payment received by a taxpayer as replacement for lost salary, wages or other income is generally taxable. A legislative amendment is required to make the payment exempt from income tax.

1.6 Exempting these payments from income tax will lessen the financial hardship experienced by those individuals affected by the flooding events that began in late November 2010 and continued in 2011 in Queensland, New South Wales, Western Australia, Victoria and South Australia, as well as those individuals affected by Cyclone Yasi which devastated parts of Queensland in February 2011.

Summary of new law

1.7 This measure amends section 51-30 of the ITAA 1997 to list the Disaster Income Recovery Subsidy as exempt from income tax if it has been claimed after 9 January 2011 and before 1 March 2011.

Detailed explanation of new law

1.8 Section 11-15 of the ITAA 1997 lists income which is exempt from income tax. This list will be amended to include the Disaster Income Recovery Subsidy for the floods that occurred in Australia on or after 29 November 2010, or for Cyclone Yasi, as an exempt payment. [Schedule 1, item 1]

1.9 Section 51-30 of the ITAA 1997 contains a table listing welfare payments that are exempt from income tax and any exceptions and special conditions that must be met to qualify for the exemption.

1.10 The amendment to section 51-30 will make the Disaster Income Recovery Subsidy for the floods that occurred in Australia on or after 29 November 2010, or for Cyclone Yasi, exempt from income tax. [Schedule 1, item 2]

Application and transitional provisions

1.11 These amendments exempt from income tax the Disaster Income Recovery Subsidy payments made to victims of the 2010-11 floods or Cyclone Yasi where these payments are claimed after 9 January 2011.

1.12 These amendments will be repealed on 1 July 2014, by which time the amendments would have become inoperative. [Schedule 1, items 3 and 4]