House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Josh Frydenberg MP)

Chapter 1 - Tax-free treatment of 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 extend the concessional tax treatment of payments received by eligible businesses under eligible COVID-19 recovery grant programs administered by a State or Territory Government (or a State or Territory authority).

Context of amendments

1.2 As part of the ongoing response to the COVID-19 pandemic, State and Territory governments continue to announce support packages and provide grants to businesses to help them manage the economic impacts of the pandemic on their business.

1.3 For example, the Victorian Government has recently announced further packages to support businesses during the recent lockdowns that were put in place in Victoria to help curb the spread of COVID-19.

1.4 To ensure that affected businesses continue to obtain an additional boost to their cash flow, the Commonwealth Government will extend the concessional tax treatment of eligible business support grants received by businesses to include grants received in the 2021-22 financial year.

Detailed explanation of new law

1.5 An amendment is made to section 59-97(1)(c) of the ITAA 1997 to include the 2021-22 financial year. [Schedule 1, item 1, section 59-97(1)(c) of the Income Tax Assessment Act 1997]

1.6 The amendment extends the application of the non-assessable non-exempt income status to payments an eligible entity receives under an eligible grant program to include payments received in the 2021-22 financial year. This will ensure that such payments will not be subject to income tax by the Commonwealth.

Application and transitional provisions

1.7 An application provision has been included to clarify that eligible grant payments an eligible entity receives in the 2020-21 or 2021-22 financial year has non-assessable non-exempt income status. The application provision ensures that entities with a substituted accounting period are also able to take advantage of the non-assessable non-exempt income status of grant payments. [Schedule 1, item 2]