As a primary producer, you need to understand how any unusual income, called 'abnormal income', is taxed, including income such as:
- disaster relief payments
- grants and subsidies
- profit from forced disposal or death of livestock
- insurance payments
- double wool clips.
In some circumstances you may lose your entitlement to spread abnormal income.
Following a disaster, you may receive assistance from government authorities, charitable institutions, employers, a trade union or other sources. Common types of government disaster relief are:
- Australian Government Disaster Recovery Payments (DRP)
- Disaster Recovery Allowance (DRA)
- payments under the Natural Disaster Relief and Recovery Arrangements (NDRRA)
- other ex-gratia relief payments.
Most one-off assistance payments are tax-free, but regular Centrelink payments are taxable.
Generally, amounts you receive through grants or subsidies will be assessable income, however some may be exempt from tax. The payer of the grant, subsidy or other payment will usually provide you with advice about the tax implications.
- Sustainable rural water use and infrastructure program
- TR 2006/3 Income tax: government payments to industry to assist entities (including individuals) to continue, commence or cease business
If you make any profit from the forced disposal or death of livestock, you can elect to either:
- spread the profit earned over a period of five years
- defer the profit and use it to reduce the cost of replacement livestock in the disposal year or any of the next five income years.
If you choose deferral, any unused part of the profit is counted as assessable income in the fifth income year.
You can elect to spread or defer profits if you dispose of stock or stock dies because:
- your land is compulsorily acquired or resumed under an Act
- a state or territory leases land for a cattle tick eradication campaign
- pasture or fodder is destroyed by fire, drought or flood and you will use the profits mainly to buy replacement stock or maintain breeding stock for the purpose of replacing the livestock
- they are compulsorily destroyed under an Australian law for the control of a disease (including bovine tuberculosis) or they die of a disease
- you receive official notification under an Australian law dealing with contamination of property.
However, if you are eligible to elect to spread your profit over five years, you may become ineligible – see Losing your eligibility.
If you receive an insurance payment for the loss of livestock or trees, and you have claimed the cost of the insurance premiums as a tax deduction, the payment amount you receive will be treated as assessable income.
If the payment is for assets of a primary production business, for example, trees lost to a fire or forced disposal of livestock, you can elect to spread the payment over five years (for example, 20% each year).
If you don't elect to do this, the whole amount is treated as assessable income in the year you received the payment.
You must make the election on or before the date you lodge your first tax return after receiving the insurance payment.
However, if you are eligible to elect to spread your income, you may become ineligible – see Losing your eligibility.
If you're a wool grower and you had to shear your sheep earlier than usual because of drought, fire or flood, you can elect to defer the profit on the sale of the second clip to the next year. This will smooth out the abnormal income between the two years.
However, if you are eligible to elect to spread your profit over two years, you may become ineligible – see Losing your eligibility.
You may become ineligible to spread abnormal income over a period of years if you:
- become bankrupt, insolvent or die
- permanently depart from Australia
- cease to carry on the primary production business the election relates to.
This may apply if you are a:
- sole trader
- partner in a primary production partnership
- trustee or beneficiary of a primary production trust.
In the case of a trust, you can apply to us to make a determination that you can still make an election if we consider it is fair and reasonable to do so.Find out how 'abnormal income', such as disaster relief payments, grants and subsidies, profit from forced disposal or death of livestock, insurance payouts and double wool clips, is taxed.