House of Representatives

Supplementary Explanatory Memorandum

Circulated By the Authority of the Treasurer, the Hon Wayne Swan Mp

General outline and financial impact

Assistance to individuals and communities affected by the Victorian bushfires and North Queensland floods

These Government amendments introduce Schedule 5 to the Bill.

Part 1 of Schedule 5 amends the Income Tax Assessment Act 1936 and the Income Tax Assessment Act 1997 (ITAA 1997) to make the income recovery subsidy 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. The income recovery subsidy will provide financial assistance to employees, small business owners and farmers who can demonstrate they have experienced a loss of income as a direct result of the 2009 Victorian bushfires or North Queensland floods.

Part 2 of Schedule 5 amends the ITAA 1997 to provide that the Treasurer may declare an event as a disaster for the purposes of establishing Australian disaster relief funds. The declaration of a disaster by the Treasurer will allow Australian disaster relief funds to receive tax deductible donations, and provide money for the relief of people in Australia in distress as a result of the disaster. Public benevolent institutions, which must normally operate for direct relief efforts, will also be able to establish Australian disaster relief funds for longer term recovery and community reconstruction efforts.

Part 2 also specifically lists the 2009 Victorian Bushfire Appeal Trust Account as a deductible gift recipient (DGR) in Division 30 of the ITAA 1997. This will ensure that the fund can use tax deductible donations for a wide range of activities, including recovery and community reconstruction efforts in communities affected by the 2009 Victorian bushfires, as well as providing direct benevolent relief to affected communities.

Date of effect : The amendments which make the income recovery subsidy exempt from income tax, and ensure the subsidy is not included in separate net income, apply to the 2008-09 income year.

The amendments to the Australian disaster relief fund general DGR category, and the specific listing as a DGR of the 2009 Victorian Bushfire Appeal Trust Account apply to the 2008-09 income year and later income years.

Proposal announced : The Prime Minister announced the income recovery subsidy in Parliament on 10 February 2009.

Financial impact : The amendments to make the income recovery subsidy exempt from income tax, and to ensure the subsidy is not included in separate net income have a zero revenue cost against the forward estimates as the payments themselves are newly announced and thus no tax on these payments is included in the forward estimates revenue base. There will be a foregone cost to revenue of approximately $16.3 million as a result of these payments in the 2008-09 income year.

The amendments to the Australian disaster relief fund category have a zero revenue cost against the forward estimates, as there are no disaster relief funds currently awaiting deductible gift recipient status under this general DGR category.

The amendment to specifically list the 2009 Victorian Bushfire Appeal Trust Account is expected to have a negative revenue impact of $46.5 million in the 2009-10 income year.

Compliance cost impact : Negligible.