Explanatory Memorandum
(Circulated by the authority of the Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)Chapter 2 - Tax exemption for ex-gratia payments for natural disasters
Outline of chapter
2.1 Schedule 2 to this Bill amends the Income Tax Assessment Act 1997 (ITAA 1997) to exempt from income tax ex-gratia payments made in relation to the disasters occurring across Australia during the 2011-12 and 2012-13 financial years.
Context of amendments
Ex-gratia payments to New Zealand Citizens
2.2 New Zealand citizens who arrived in Australia after 26 February 2001 are classified as non-protected special category visa holders and are not eligible for the Australian Government Disaster Recovery Payment.
2.3 The Australian Government Disaster Recovery Payment is a one-off payment which provides short-term financial assistance to individuals adversely affected by a major or widespread disaster, such as the floods that occurred in New South Wales, Queensland and Victoria in early 2012, the floods in New South Wales and Queensland in early 2013, and the bushfires in Tasmania in early 2013.
2.4 In light of the hardship these disasters may have caused New Zealand non-protected special category visa holders, the Government has agreed to make ex-gratia payments to affected eligible individuals.
2.5 The ex-gratia payment provides financial assistance to New Zealand citizens living in Australia who hold a non-protected special category visa (subclass 444) and who are adversely affected by disasters in the local government areas where the Australian Government Disaster Recovery Payment has been made available during the 2011-12 and 2012-13 financial years.
2.6 The ex-gratia payment is commensurate with the Australian Government Disaster Recovery Payment rates of $1,000 for eligible adults and $400 for eligible children.
2.7 The ex-gratia payment is administered by the Department of Human Services, and can generally be claimed for six months after the disaster has been declared by the Minister for Emergency Management.
2.8 Exempting from income tax the ex-gratia payment to New Zealand non-protected special category visa holders who have been affected by the recent disasters, and any other natural disasters that may occur before 30 June 2013, ensures that the payment receives the same taxation treatment as the Australian Government Disaster Recovery Payment made to eligible individuals.
2.9 It is also consistent with the exemption provided to New Zealand non-protected special category visa holders who received an ex-gratia payment because they were adversely affected by the disasters since the summer of 2010-11.
Disaster Income Recovery Subsidy
2.10 The Disaster Income Recovery Subsidy (DIRS) provides financial assistance to employees, small business persons and farmers that have lost their income as a result of natural disasters.
2.11 The DIRS is an ex-gratia payment which is made to eligible individuals who are residents for tax purposes, and to eligible New Zealand non-protected special category visa holders (subclass 444).
2.12 On 3 February 2013, the Prime Minister announced that the DIRS would be made available to eligible people who have lost income as a result of ex-Tropical Cyclone Oswald and associated flooding in the local government areas (LGAs) of Bundaberg, North Burnett, Fraser Coast, Gympie and Lockyer Valley.
2.13 On 13 February 2013, the Prime Minister agreed to extend the DIRS to people who lost income as a result of the ex-Tropical cyclone Oswald and associated flooding in Queensland that occurred in January 2013 in the Local Government Areas of Banana, Gladstone, Ipswich, Scenic Rim, Somerset, South Burnett, Southern Downs, Goondiwindi and Toowoomba.
2.14 Providing this payment with tax exempt status is consistent with previous activations of the DIRS.
Summary of new law
2.15 This measure amends the ITAA 1997 to list the assistance for New Zealand non-protected special category visa holders as exempt from income tax if it is claimed within the required time period.
2.16 This measure also amends the ITAA 1997 to list the DIRS as exempt from income tax if it is claimed within the required time period.
Detailed explanation of new law
2.17 Section 11-15 of the ITAA 1997 lists income which is exempt from income tax. This list will be amended to include disaster assistance for New Zealand non-protected special category visa holders, and the DIRS. [Schedule 2, item 1]
2.18 Section 51-30 of the ITAA 1997 contains a table detailing welfare payments that are exempt from income tax and any exceptions and special conditions that must be met to qualify for the exemption.
2.19 Schedule 2 amends section 51-30 of the ITAA 1997 to repeal the current item 5.1C, and insert item 5.2 into the table, making the assistance for New Zealand non-protected special category visa holders for the disasters where the Australian Government Disaster Recovery Payment is activated during the 2011-12 income year exempt from income tax. [Schedule 2, item 2, item 5.2 in table in section 51-30]
2.20 Schedule 2 amends section 51-30 of the ITAA 1997 to insert a new item 5.3 into the table, making the assistance for New Zealand non-protected special category visa holders for the disasters where the Australian Government Disaster Recovery Payment is activated during the 2012-13 income year exempt from income tax. [Schedule 2, item 2, item 5.3 in table in section 51-30]
2.21 Schedule 2 also amends section 51-30 of the ITAA 1997 to insert a new item 5.4 into the table, making the ex-gratia payment known as DIRS for the flooding resulting from ex-Tropical Cyclone Oswald that occurred in Queensland during the period starting on 21 January 2013 exempt from income tax. [Schedule 2, item 2, item 5.4 in table in section 51-30]
2.22 This Schedule also introduces a definition of Emergency Management Minister to assist with the readability of the legislation. The definition also allows disasters for the purposes of this section to be linked with an announcement by the relevant Minister. The definition is in line with the Administrative Arrangements Orders, and it is currently the Attorney-General who administers the Social Security Act 1991 , insofar as it relates to the Australian Government Disaster Recovery Payment. [Schedule 2, item 3]
2.23 The special conditions inserted in the table in section 51-30 reflect the dates by which the payments must be claimed. This is generally six months after the disaster has been announced.
Application and transitional provisions
2.24 These amendments exempt from income tax ex-gratia payments made in relation to the disasters in Australia during the 2011-12 and 2012-13 financial years, provided these payments are claimed in accordance with the special conditions in the table in section 51-30 of the ITAA 1997.
2.25 These amendments will be repealed on 1 July 2016 in the case of the tax exemption for the 2011-12 financial year, and on 1 July 2017 in the case of the 2012-13 tax exemption, by which time the amendments would have become inoperative. [Schedule 2, items 6 to 9]
Consequential amendments
2.26 The Schedule also repeals sections in the tax laws which dealt with disaster assistance payments which are no longer necessary following these amendments. [Schedule 2, items 4 and 5]
STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011
Tax exemption for ex-gratia payments for natural disasters
2.27 Schedule 2 to this Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 .
Overview
2.28 Schedule 2 to this Bill amends the ITAA 1997 to exempt from income tax ex-gratia payments made in relation to the natural disasters occurring across Australia during the 2011-12 and 2012-13 financial years.
Human rights implications
2.29 This Schedule does not engage any of the applicable rights or freedoms, and the amendments are beneficial to taxpayers.
Conclusion
2.30 This Schedule is compatible with human rights as it does not raise any human rights issues.
Assistant Treasurer, the Hon David Bradbury