ATO Interpretative Decision
ATO ID 2005/52
Income Tax
Assessable Income: Exit Assistance Program grantFOI status: may be released
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This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Does the grant under the Exit Assistance Program (EAP) constitute assessable income of the taxpayer under section 15-10 of the Income Tax Assessment Act 1997 (ITAA 1997) where the EAP requires the taxpayer to transfer ownership of all their irrigated land and, as a result of that transfer, the taxpayer's farming business ceased?
Decision
No. The grant under the EAP does not constitute assessable income of the taxpayer under section 15-10 of the ITAA 1997 where the EAP requires the taxpayer to transfer ownership of all their irrigated land and, as a result of that transfer, the taxpayer's farming business ceased.
Facts
The taxpayer is a land owner. The taxpayer carries on a farming business on the land.
The government introduced the EAP as part of its plan for reclaimed irrigated lands.
Under the EAP, a lump sum non repayable grant is paid to eligible landowners who sell all their irrigated land.
The taxpayer sells their irrigated land and as a result ceased their farming business. The taxpayer receives a grant under the EAP.
Reasons for Decision
Section 15-10 of the ITAA 1997 includes in assessable income bounties and subsidies that are received in relation to carrying on a business and are not assessable as ordinary income under section 6-5 of the ITAA 1997.
It is well accepted that a 'subsidy' in the context of section 15-10 of the ITAA 1997 includes a financial grant made by the government (Squatting Investments Co Ltd v. Federal Commissioner of Taxation (1953) 86 CLR 570; (1953) 10 ATD 126; (1953) 5 AITR 496; Reckitt and Colman Pty Ltd v. FC of T 74 ATC 4185; (1974) 4 ATR 501; First Provincial Building Society Ltd v. Commissioner of Taxation (1995) 56 FCR 320; 95 ATC 4145 (1995) 30 ATR 207; (the First Provincial Case); Re Softex Industries Pty Ltd v. FC of T 2002 ATC 2284; (2002) 51 ATR 1141; Plant v. FC of T 2004 ATC 2364; (2004) AATA 1296).
In looking at the meaning of the phrase 'in relation to the carrying on of a business' Hill J stated in the First Provincial Case 56 FCR 320 at 329; 95 ATC 4145 at 4154; (1995) 30 ATR 207 at 216; that:
...the relationship must be to the "carrying on" of the business. These words may perhaps be understood in opposition to a relationship with the actual business itself. They would make it clear, for example, that a bounty received, merely in relation to the commencement of a business or the cessation of the business, would not be caught. The expression "carrying on of the business" looks, in my opinion, to the activities of that business which are directed towards the gaining or producing of assessable income, rather than merely to the business itself.
It is clear from the First Provincial Case that it is not sufficient the payment be received in relation to the business it must be in relation to the 'carrying on' of that business.
The EAP grant received by the taxpayer was subject to the prior sale of all their irrigated land which resulted in the immediate cessation of the taxpayer's business. The grant is therefore received by the taxpayer in relation to the cessation of the business and not in relation to the carrying on of the business.
Therefore the EAP grant received by the taxpayer is not assessable income under section 15-10 of the ITAA 1997.
Date of decision: 8 February 2005Year of income: Year ended 30 June 2003 Year ended 30 June 2004 Year ended 30 June 2005
Legislative References:
Income Tax Assessment Act 1997
section 6-5
section 15-10
Case References:
Squatting Investments Co Ltd v. Federal Commissioner of Taxation
(1953) 86 CLR 570
(1953) 10 ATD 126
(1953) 5 AITR 496
74 ATC 4185 First Provincial Building Society Ltd v. Commissioner of Taxation
(1995) 56 FCR 320
95 ATC 4145 Re Softex Industries Pty Ltd v. FC of T
2002 ATC 2284 Plant v. FC of T
2004 ATC 2364
(2004) AATA 1296
Keywords
Bounties & subsidies
Business income
Carrying on business
Grants of financial assistance & funding
ISSN: 1445-2782
| Date: | Version: | |
| You are here | 8 February 2005 | Original statement |
| 25 June 2010 | Archived |
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