House of Representatives

Explanatory Memorandum

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

Chapter 2 - Tax exemption for ex-gratia payments for natural disasters

Outline of chapter

2.1 Schedule 2 to this Bill amends the Income Tax Assessment Act 1997 (ITAA 1997) to exempt from income tax the Disaster Income Recovery Subsidy (DIRS) for people who have lost income as a result of disasters occurring across Australia during the period 3 January 2013 to 30 September 2013.

Context of amendments

Disaster Income Recovery Subsidy

2.2 The DIRS provides financial assistance to employees, small business persons and farmers who have lost their income as a result of natural disasters.

2.3 The DIRS is an ex-gratia payment which is made to eligible individuals who are residents for tax purposes, and to eligible New Zealand non-protected special category visa holders (subclass 444).

2.4 The ex-gratia payment is administered by the Department of Human Services, and can generally be claimed for six months after the disaster has occurred.

2.5 Schedule 2 to the Tax and Superannuation Laws Amendment (2013 Measures No. 2) Bill 2013 (TSLAB 2) contained amendments to the ITAA 1997 to exempt DIRS payments made in relation to the floods that occurred in Queensland during the period starting on 21 January 2013.

2.6 This includes the local government areas (LGAs) of Banana, Bundaberg, Fraser Coast, Gladstone, Goondiwindi, Gympie, Ipswich, Locker Valley, North Burnett, Scenic Rim, Somerset, South Burnett, Southern Downs and Toowoomba.

2.7 Schedule 2 to this Bill broadens the exemption to DIRS payments for a disaster occurring during the period starting on 3 January and ending on 30 September 2013. This will cover individuals in the LGAs affected by the bushfires in Tasmania that occurred in January 2013 and other subsequent disasters where DIRS is activated up to and including 30 September 2013.

2.8 This includes the DIRS that was activated for the additional LGAs in Queensland, namely Central Highlands, Gold Coast, Logan, Rockhampton, Sunshine Coast and Western Downs. This also includes DIRS activated for the LGAs of Sorell and Tasman, which were affected by the Tasmanian bushfires, and subsequent DIRS activated from 8 March 2013.

2.9 Providing this payment with tax exempt status is consistent with previous activations of the DIRS.

Summary of new law

2.10 This measure amends the ITAA 1997 to list the DIRS as exempt from income tax if it is claimed within the required time period.

Detailed explanation of new law

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

2.12 Schedule 2 amends section 51-30 of the ITAA 1997 to insert a new item 5.4 into the table, making the ex-gratia payment known as DIRS made in relation to a disaster occurring during the period starting on 3 January 2013 and ending on 30 September 2013 exempt from income tax. [Schedule 2, item 1, item 5.4 in table in section 51-30]

2.13 The special conditions in item 5.4 inserted in the table in section 51-30 reflect the dates by which the payments must be claimed. The payment can generally be claimed for six months after the disaster has been announced, until and including 31 March 2014 (before 1 April 2014).

2.14 Section 11-15 of the ITAA 1997 lists income which is exempt from income tax. TSLAB 2 amends this list to include the DIRS, and no further amendment is made in Schedule 2 to this Bill.

Application and transitional provisions

2.15 These amendments exempt from income tax ex-gratia DIRS payments made in relation to the disasters in Australia during the period 3 January 2013 and 30 September 2013, provided these payments are claimed in accordance with the special conditions in the table in section 51-30 of the ITAA 1997.

2.16 Schedule 2 commences on Royal Assent or immediately after the commencement of Part 1 of Schedule 2 to TSLAB 2, so that the new item 5.4 inserted by this Schedule (which provides a broader exemption), replaces the previous item 5.4 (which provided a more narrow exemption).

2.17 However, the provisions in this Schedule do not commence at all if TSLAB 2 does not pass. This reflects the fact that this Schedule replaces item 5.4, whereas if TSLAB 2 does not pass, there will be no item 5.4 to replace.

2.18 TSLAB 2 also contained sunsetting provisions which would result in item 5.4 being repealed on 1 July 2017, by which time the item would have become inoperative. As the sunsetting provision still remains relevant to these circumstances, Schedule 2 to this Bill does not change the operation of the sunsetting provision.

STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Tax exemption for ex-gratia payments for natural disasters

2.19 Schedule 2 to this Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 .

Overview

2.20 Schedule 2 to this Bill amends the Income Tax Assessment Act 1997 to exempt from income tax the Disaster Income Recovery Subsidy for people who have lost income as a result of disasters occurring across Australia during the period 3 January 2013 to 30 September 2013.

Human rights implications

2.21 This Schedule does not engage any of the applicable rights or freedoms, and the amendments are beneficial to taxpayers.

Conclusion

2.22 This Schedule is compatible with human rights as it does not raise any human rights issues.

Assistant Treasurer, the Hon David Bradbury