Explanatory Memorandum
(Circulated by authority of the Assistant Treasurer, the Hon Stuart Robert MP)Chapter 2 Income tax exemption for storm assistance payments
Outline of chapter
2.1 Schedule 2 to the Bill amends the ITAA 1997 to exempt from income tax certain payments to primary producers that relate to storm damage sustained on or around 25 October 2018.
2.2 Payments may be made by the FRRR under grants totalling $1 million from the Commonwealth to support primary producers in the Fassifern Valley, Queensland, affected by the storm.
Context of amendments
2.3 A number of primary producers in the Fassifern Valley, Queensland, suffered property damage, including significant damage to crops, from severe storms on 25 October 2018.
2.4 The Government will provide grants totalling $1 million to fund payments to affected primary producers. The FRRR will receive the grants and will be responsible for administering payments to affected primary producers.
Summary of new law
2.5 Schedule 2 to the Bill amends the ITAA 1997 to make the payments to primary producers exempt income for income tax purposes. This ensures primary producers do not pay tax on payments they receive from the grants. The payments will nevertheless be taken into account in working out a primary producer's tax loss for an income year.
Detailed explanation of new law
2.6 There are two conditions on the eligibility of a payment for the income tax exemption.
2.7 Firstly, the payment must be made for the purposes of an agreement between the Commonwealth and the FRRR. The agreement must be one entered into principally for the purpose of providing assistance to primary producers affected by the 25 October 2018 storm in the Fassifern Valley. [Schedule 2, item 2, paragraph 51-125(1)(a) and subsection 51-125(2) of the ITAA 1997]
2.8 Secondly, the payment must itself relate to damage sustained by the recipient in the same storm. Damage includes damage sustained on 25 October 2018 and at other times around that date. The minor extension of the time in which damage sustained may qualify for a payment is intended to provide a limited degree of flexibility where it is not possible to establish that damage was incurred on 25 October 2018. The extension is not intended to remove the requirement the damage clearly and directly relate to the storm. [Schedule 2, item 2, paragraph 51-125(1)(b) of the ITAA 1997]
2.9 The payment may be made by the FRRR directly or indirectly through an intermediary. It is envisaged the FRRR will consult with community organisations in the administration of the payments and will subcontract the making of payments to a community organisation. [Schedule 2, item 2, the note to subsection 51-125(2) of the ITAA 1997]
2.10 The effect of the income tax exemption is that the payments to affected primary producers are not included in the recipients' assessable income (subsection 6-15(2) of the ITAA 1997).
2.11 Payments received under the grant may nevertheless reduce a taxpayer's tax loss for the income year in which the taxpayer derives the payment (subsection 36-10(3) and section 36-20 of the ITAA 1997).
Consequential amendments
2.12 The table in section 11-15 of the ITAA 1997 lists provisions that make amounts exempt income. The table is amended to include the storm assistance payments. [Schedule 2, item 1, table item headed 'disasters' of the table in section 11-15 of the ITAA 1997]
Application and transitional provisions
2.13 The amendments commence on the first day of the first quarter to occur after the day the Bill receives Royal Assent. [Clause 2 of the Bill]
2.14 The amendments apply to assessments for the 2018-19 income year and later income years in which qualifying payments are derived by primary producers. [Schedule 2, item 3]
2.15 This means the amendments apply retrospectively from the start of the 2018-19 income year. However, the amendments are beneficial to all affected taxpayers as they retrospectively ensure payments to primary producers are treated as exempt income. This removes any obligation to pay income tax on the payments.