House of Representatives

Explanatory Memorandum

(Circulated by authority of the Minister for Housing and Assistant Treasurer, the Hon Michael Sukkar MP.)

Chapter 1 - Making tax free certain small business grants relating to the Coronavirus recovery

Outline of chapter

1.1 Schedule 1 to the Bill amends the income tax law to make payments received by eligible businesses under certain grant programs administered by a State or Territory Government (or a State or Territory authority) non-assessable non-exempt income so that these payments are not subject to income tax by the Commonwealth.

1.2 To obtain this concessional treatment, among other things, the payment must be made under a grant program that is declared by the Minister to be eligible and is, in effect, responding to the economic impacts of the Coronavirus. Accordingly, Schedule 1 to the Bill gives the Minister power to declare certain grant programs as eligible for non-assessable non-exempt income tax treatment under an instrument-making power.

Context of amendments

1.3 As part of the response to the Coronavirus pandemic, State and Territory governments are providing grants to certain businesses to help them manage the impacts of the pandemic on their business - such as businesses subject to public health directives whose trading have been restricted. For example, the Victorian Government has provided financial support to businesses that are significantly impacted by Coronavirus related restrictions in Victoria through various grant programs given the exceptional circumstances these businesses face.

1.4 Under the income tax law, these State and Territory based grants are generally considered to be taxable income by the Commonwealth.

1.5 Treating certain State and Territory based grants as non-assessable non-exempt income for tax purposes ensures these payments are not subject to income tax by the Commonwealth. This concessional treatment will further support and aid the economic recovery of affected businesses.

Summary of new law

1.6 Schedule 1 to the Bill amends the income tax law to make payments received by eligible businesses under certain grant programs administered by a State or Territory (or a State or Territory authority) non-assessable non-exempt income so that these payments are not subject to income tax by the Commonwealth.

1.7 To obtain this concessional treatment, among other things, the payment must be made under a grant program that is declared by the Minister to be eligible and is, in effect, responding to the economic impacts of the Coronavirus. Accordingly, Schedule 1 to the Bill gives the Minister power to declare certain grant programs as eligible for non-assessable non-exempt income tax treatment under an instrument-making power.

Comparison of key features of new law and current law

Detailed explanation of new law

1.8 Schedule 1 to the Bill amends the income tax law to make payments received by eligible businesses under certain grant programs administered by a State or Territory (or a State or Territory authority) non-assessable non-exempt income so that these payments are not subject to income tax by the Commonwealth.

1.9 Entities are eligible for this concessional tax treatment if:

•

the entity carries on a business and has an aggregated turnover of less than $50 million;

•

the payment was made under a grant program administered by a State or Territory (or a State or Territory authority) that is declared to be an eligible grant program by the Minister; and

•

the payment was received in the 2020-21 financial year.

[Schedule 1, item 2, subsections 59-97(1) and (2)]

1.10 The Minister must, by legislative instrument, declare a grant program to be an eligible grant program if the Minister is satisfied that:

•

the program was first publicly announced on or after 13 September 2020 by the relevant State, Territory or authority;

•

the program is responding the economic impacts of the Coronavirus;

•

the program is directed at supporting businesses subject to certain restrictions regarding their operations (including being subject to a public health directive that applies to the geographical area in which they operate); and

•

the State, Territory or authority has requested the Minister to make this declaration.

[Schedule 1, item 2, subsection 59-97(3)]

1.11 To meet the eligibility criteria regarding the purpose and effect of the grant program, the program does not need to explicitly address the criteria. The Minister must only be satisfied of these circumstances.

1.12 These eligibility requirements ensure that only payments made under grant programs that are directly concerned with managing the impacts of the Coronavirus for affected businesses will obtain concessional tax treatment.

1.13 The concessional tax treatment ensures that eligible businesses obtain an additional boost to their cash flow, further supporting their economic recovery. This is because, in addition to the payments not being subject to income tax (by being treated as non-assessable non-exempt income), businesses will continue to be able to claim deductions for eligible expenses made with the grant payments.

1.14 The list of non-assessable non-exempt income provisions of the ITAA 1997 has also been updated. [Schedule 1, item 1, section 11-55]

Application and transitional provisions

1.15 The amendments made to the ITAA 1997 to give effect to the concessional tax treatment of certain small business grants apply to the 2020-21 income year and later income years. [Schedule 1, item 3]

1.16 The provisions in Schedule 1 to the Bill commence on the day after the Bill receives Royal Assent. [Clause 2 to the Bill]