This fact sheet details the way tax applies to you if you receive a payment under the Murray-Darling Basin Small Block Irrigators Exit Grant Package (the package).
The package provides payments to help small irrigators in the Murray-Darling Basin who are affected by drought and climate change and wish to cease irrigation farming. Assistance includes the:
- Small Block Irrigators Exit Grant (exit grant)
- Advice and Retraining Grant
- Removal Grant.
The exit grant is a one-off payment for irrigators who sell to the Commonwealth all their tradeable permanent entitlements to extract water from a watercourse, as part of the Restoring the Balance in the Murray-Darling Basin Program.
One of the conditions for receiving the exit grant is that you are willing to give an undertaking that neither you nor your farm land will be involved in irrigated farming for at least five years after the exit grant is paid.
Is the exit grant regarded as income?
No. The exit grant is not assessable as ordinary income or as a bounty or subsidy.
Is the grant subject to CGT?
Yes. A contractual right is created when you enter into the agreement with the Commonwealth not to be involved in an irrigation farming enterprise for at least five years. The right is a separate asset from the land and water entitlements.
You make a capital gain or loss when a capital gains tax (CGT) event happens. In this case, CGT event D1 happens when the agreement is executed.
You will make a capital gain if the amount of the exit grant is more than the incidental costs you have incurred in relation to it. You will make a capital loss if the amount of the exit grant is less than the incidental costs you have incurred in relation to it.
Is the capital gain subject to the CGT discount?
No. A capital gain from a CGT event D1 is not a discount capital gain.
Are you entitled to small business CGT relief?
You may be entitled to small business CGT relief.
A special condition for small business CGT relief applies where a capital gain arises from CGT event D1. The right you create by agreeing not to be involved in irrigation farming must be inherently connected with an active business asset. In this case, that condition is satisfied as the rights created by you would be sufficiently connected with your irrigation block, which is an active asset.
Do you make a taxable supply for GST purposes?
Yes. The grant is consideration for the supply of binding obligations under the 'determination and agreement' made in the application. Provided the other requirements of section 9-5 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act) are met, the grant will result in a taxable supply.
This grant is for advice and training services to help in the decision making and planning processes associated with your exit from irrigated farming and to pay for training for alternative employment or an alternative career. The grant is provided by the issue of vouchers.
Is the grant regarded as income?
No. If the Advice and Retraining Grant is received only in respect to leaving irrigated farming, it is not assessable as ordinary income or as a bounty or subsidy.
Is the grant an assessable recoupment?
Any amount you receive that is a reimbursement or recoupment of outgoings that are deductible under any provisions of the Income Tax Assessment Act 1997 (ITAA 1997) listed in the table in section 20-30 is an assessable recoupment under Subdivision 20-A.
For example, an amount paid under the Advice and Retraining Grant for the purchase of business-related software may be an assessable recoupment, as the expenditure may be deductible under Division 40 of the ITAA 1997.
Is the grant subject to CGT?
No. Any capital gain or loss you make by being provided with a voucher is disregarded, as it has been provided under a government scheme.
Do you make a taxable supply for GST purposes?
Generally, you do not make a taxable supply, but it depends on the details of the arrangements put in place.
The Removal Grant helps you to remove all permanent plantings and above-ground production-related infrastructure from your irrigation block.
Is the grant regarded as income?
No. The Removal Grant is not assessable as ordinary income or as a bounty or subsidy.
Is the grant an assessable recoupment?
No. As the cost of removing permanent plantings and above-ground production-related infrastructure from the irrigation block is not deductible, the reimbursement of these costs is not an assessable recoupment.
Is the grant subject to CGT?
No. Any capital gain or loss made as a result of receiving a reimbursement of expenses under a government scheme is disregarded.
Is a deduction for unclaimed establishment expenditure available?
Yes. A deduction for the remaining unclaimed establishment expenditure for removed plants may by available under section 40-565 of the ITAA 1997 in the income year that they are removed, if they are horticultural plants with an effective life of three years or more. The deduction is available if the plant is removed while it is owned and used for commercial horticulture.
Do you make a taxable supply for GST purposes?
No. You do not provide any goods and services nor rights or obligations for which the grant is consideration. Therefore, you cannot make a taxable supply.
If you are unsure of your tax obligations under any category of the Murray-Darling Basin Small Block Irrigators Exit Grant Package, phone us on 13 28 66.
For more information about the package view:
If you do not speak English well and want to talk to a tax officer, phone the Translating and Interpreting Service on 13 14 50 for help with your call.
If you have a hearing or speech impairment and have access to appropriate TTY or modem equipment, phone 13 36 77. If you do not have access to TTY or modem equipment, phone the Speech to Speech Relay Service on 1300 555 727.
Last Modified: Friday, 20 January 2012