Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)Chapter 4 - Cyclones Elaine and Vance Trust Account etc.
Overview
4.1 Item 4 of Schedule 1 to this Bill will extend income tax exempt status to non-profit organisations which promote the development of fishing and/or aquacultural resources.
4.2 Schedule 2 to this Bill exempts from income tax business recovery grants paid to eligible businesses by the Cyclones Elaine and Vance Trust Account.
4.3 Non-profit organisations which promote the development of fishing and/or aquacultural resources will be exempt from income tax for the 1999-2000 and later years of income.
4.4 Grants paid by the Cyclones Elaine and Vance Trust Account will be exempt from income tax for the 1998-1999 and 1999-2000 years of income.
Explanation of the amendments
Fishing and aquacultural organisations
4.5 The income tax law provides an exemption from income tax for non-profit societies or associations that promote the development of the agricultural, horticultural, industrial, manufacturing, pastoral or viticultural resources of Australia. However, organisations which promote the development of fishing and/or aquacultural resources do not qualify for an exemption under the income tax law.
4.6 The Government has decided that these organisations should be afforded the same exempt income status as other groups which promote the development of primary and secondary resources of Australia. The amendments extend income tax exempt status to non-profit organisations which promote the development of the fishing and/or aquacultural resources of Australia. [Item 4]
Cyclones Elaine and Vance Trust Account
4.7 On 7 July 1999, the Assistant Treasurer announced that business recovery grants paid to eligible businesses devastated by Cyclones Elaine and Vance would be exempt from income tax.
4.8 The grants (up to a maximum of $10,000 for each business) are paid from the Cyclones Elaine and Vance Trust Account to provide business assistance to the cyclone affected regions.
4.9 Specifically, Schedule 2 will ensure that grants of assistance for business recovery will be treated as exempt income so that an amount of ordinary or statutory income paid by way of a grant of assistance will not be assessable to the taxpayer. The exemption does not extend to amounts paid to a third party as the grant must be paid directly to the taxpayer. [Item 1]
4.10 Schedule 2 will also ensure that the grants will be treated as excluded exempt income so that they will not be taken into account in calculating net exempt income for the purpose of determining whether or not tax losses of earlier income years are deductible. [Item 2]
4.11 Receipt of a grant will not give rise to a capital gain. If a CGT event (e.g. CGT event C1 where a CGT asset is lost or destroyed) has happened and generated the right to compensation then a capital gain will not arise when that right is disposed of and the grant is received. However, if the asset which was destroyed was worth more than $10,000 then a capital loss may still be generated. [Item 3]
4.12 These amendments only apply in relation to the 1998-1999 and 1999-2000 income years. [Item 4]