House of Representatives

Tax Laws Amendment (2009 Measures No. 2) Bill 2009

Explanatory Memorandum

(Circulated by the authority of the Treasurer, the Hon Wayne Swan MP)

Chapter 8 Tax exemption for certain grants to businesses affected by the Victorian bushfires

Outline of chapter

8.1 Schedule 8 to this Bill amends the Income Tax Assessment Act 1997 (ITAA 1997) to provide an exemption from tax for the Clean-up and Restoration Grants paid to small businesses and primary producers affected by the Victorian bushfires.

Context of amendments

8.2 On 18 February 2009, the Australian Government, in conjunction with the Victorian Government, announced a $51 million package to assist small businesses and primary producers affected by the Victorian bushfires.

8.3 This package includes a $5,000 Clean-up and Restoration Grant, which can be increased up to $25,000 in cases where the applicant has suffered significant damage.

8.4 Generally, such grants are treated as assessable income under the income tax law. Expenses related to the carrying on of a business (ie, those funded by using the grant) would generally be deductible.

Detailed explanation of new law

8.5 This measure defines the Clean-up and Restoration Grants as non-assessable non-exempt income. This approach ensures that the grant is exempt from tax, while avoiding interactions with other areas of tax law. [ Schedule 8, item 2 ]

8.6 While the Australian and Victorian Governments have announced a number of measures to assist both individuals and businesses to recover from the Victorian bushfires, this measure only applies to the Clean-up and Restoration Grants.

Consequential amendments

8.7 The table in section 11-55 of the ITAA 1997 is amended to add the Clean-up and Restoration Grants to the list of payments that are non-assessable non-exempt income. [ Schedule 8, item 1 ]

8.8 Given the short period for which the grants would be paid, a sunsetting clause is included to repeal this measure with effect from 1 July 2011. [ Schedule 8, items 3 and 4 ]

Application and transitional provisions

8.9 This measure applies to grants paid in the 2008-09 and 2009-10 income years. [ Schedule 8, item 5 ]

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