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Authorisation Number: 1011603103063

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Ruling

Subject: Grants received as a result of bushfires

1. Is the Clean-up and Restoration Grant that you received from the Rural Finance Corporation of Victoria, in relation to the bushfires, assessable income?

No.

2. Is the grant that you received from the disaster relief fund administered by a farmers' group, in relation to the bushfires, assessable income?

No.

This ruling applies for the following period:

1 July 2008 to 30 June 2009

The scheme commences on:

1 July 2008

Relevant facts and circumstances

You operate a farm.

During the income year your farm was completely burnt out by bushfires.

You lost all of your permanent pasture fencing and many buildings as a result of the bushfires.

Livestock were trucked to another location and kept on agistment until the farm could be re-fenced.

You received the following grants as a result of the bushfires:

· a Clean-up and Restoration Grant from the Rural Finance Corporation of Victoria, and

· a grant from the disaster relief fund administered by a farmers' group.

Your application form for the farmers' group disaster relief fund states that funding was sought for the transportation of livestock to another location, and for fodder.

As part of the disaster relief fund application process you had to complete a declaration of losses form, declaring the following:

· the number of livestock destroyed and remaining

· the number of employees (full time and part time)

· the percentage of property burnt

· the number of kilometres of fencing damaged (boundary and internal)

· houses damaged/lost

· sheds damaged/lost

· equipment and water systems damaged/lost

· permanent plantings (area and type) lost, and

· other losses.

Information obtained from the farmers' group website in relation to the disaster relief fund and the bushfires states that:

· The disaster relief fund is designed to provide emergency short term relief for farmers in times of disaster and was used for those farmers financially impacted by the bushfires, with properties destroyed.

· Donations to the disaster relief fund are tax deductible.

· In the wake of the bushfires, the farmers' group accepted donations to the disaster relief fund from farmers, businesses and ordinary people. The farmers' group distributed these donations to bushfire affected farmers by way of grants.

· Farmers affected by the bushfires did not have to be a member of the farmers' group to be eligible to apply for a grant.

· Grants were allocated depending on applications, to those farmers who had sustained significant losses as a result of the fires.

· Applications were reviewed by the farmers' group disaster relief fund committee and approval was determined based on the information provided by the applicant. Key considerations were the level of reliance the applicant had on the income from the farm and the extent of the damage incurred by the applicant as a result of the bushfires.

· After sustaining damage to their homes, stock, fencing and pastures, individual farmers received grants to help in the restoration process.

The farmers' group advised that when determining whether a grant would be approved, there were no specifications as to how the funds had to be expended. The applicants just had to have demonstrated that they were in hardship by what was in their application. Grants were paid, depending on the extent of the applicant's need.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 59-50

Income Tax Assessment Act 1997 Subsection 6-1(1)

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 6-10

Income Tax Assessment Act 1997 Subsection 6-15(1)

Income Tax Assessment Act 1997 Subsection 6-15(3)

Income Tax Assessment Act 1997 Section 10-5

Income Tax Assessment Act 1997 Section 11-55

Income Tax Assessment Act 1997 Section 15-10

Reasons for decision

Question 1

Summary

Clean-Up and Restoration Grants for primary producers (administered by the Rural Finance Corporation of Victoria), in relation to the Victorian bushfires of 2009, are not assessable income by virtue of section 59-50 of the Income Tax Assessment Act 1997 (ITAA 1997).

Detailed reasoning

Subsection 6-15(3) of the ITAA 1997 states that if an amount is non-assessable non-exempt income, it is not assessable income.

There are specific provisions in the income tax legislation which make amounts non-assessable non-exempt income. These provisions are listed in section 11-55 of the ITAA 1997. Included in the list is section 59-50 of the ITAA 1997, which makes Clean-up and Restoration Grants for primary producers (administered by the Rural Finance Corporation of Victoria), in relation to the 2009 Victorian bushfires, non-assessable non - exempt income.

Consequently, the Clean-up and Restoration Grant that you received from the Rural Finance Corporation of Victoria, in relation to the bushfires is not assessable income.

Question 2

Summary

The grant that you received from the farmers' group disaster relief fund, in relation to the bushfires, is not ordinary income and is not statutory income, so it is not assessable income.

Detailed reasoning

Assessable income

Subsection 6-1(1) of the ITAA 1997 states that assessable income consists of:

· ordinary income, and

· statutory income.

If an amount is not ordinary income and is not statutory income it is not assessable income, so you do not have to pay income tax on it (subsection 6-15(1) of the ITAA 1997).

Ordinary income

Ordinary income is income according to ordinary concepts (section 6-5 of the ITAA 1997).

Ordinary income has generally been held to include three categories: income from rendering personal services, income from property and income from carrying on a business.

The courts have identified a number of factors which indicate whether an amount has the character of income according to ordinary concepts.

A frequent characteristic of income receipts is an element of periodicity, recurrence or regularity (Federal Commissioner of Taxation v. Dixon (1952) 86 CLR 540; (1952) 10 ATD 82; (1952) 5 AITR 443; (1952) 10 ATD 82). Other characteristics of income that combine with periodicity are that the receipts:

· are earned

· are expected, and

· are relied upon.

Statutory income

Statutory income is not ordinary income, but is included in assessable income by specific provisions of the income tax law (section 6-10 of the ITAA 1997).

These specific provisions are listed in section 10-5 of the ITAA 1997. The list includes bounties, subsidies or grants, which are included in assessable income by virtue of section 15-10 of the ITAA 1997.

Your case

In your case, the grant of financial assistance that you received from the farmers' group disaster relief fund is a one off or non-periodic payment and so it does not have an element of regularity. The grant was paid to you as a result of hardship suffered as the result of a disaster, the bushfires.

The farmers' group disaster relief fund is designed to provide emergency short term relief for farmers in times of disaster and was used for those farmers financially impacted by the bushfires. In the wake of the bushfires, the public gave donations to the farmers' group disaster relief fund. These donations were then distributed to bushfire affected farmers by way of grants.

Generally, a gift is regarded as a personal windfall gain and not as ordinary income unless the taxpayer has received the gift because of, in respect of, or in relation to any income producing activity of the taxpayer (Scott v. Federal Commissioner of Taxation (1966) 117 CLR 514; (1966) 14 ATD 286; (1966) 10 AITR 367 (Scott's Case)).

In Scott's Case, Windeyer J stated (at CLR 526; ATD 293):

Whether or not a particular receipt is income depends upon its quality in the hands of the recipient. It does not depend upon whether it was a payment or provision that the payer or provider was lawfully obliged to make. The ordinary illustrations of this are gratuities regularly received as an incident of a particular employment. On the other hand, gifts of an exceptional kind, not such as are a common incident of a man's calling or occupation, do not ordinarily form part of his income.

Taxation Determination TD 2006/22 discusses whether disaster relief money received from charities is assessable income of taxpayers carrying on a business. The Determination deals with situations where taxpayers, who experience financial hardship as a result of a natural disaster such as a drought or bushfire, receive financial assistance from a charity (which conducts a relief appeal and receives donations from the general public).

TD 2006/22 states that one-off disaster relief money received by a taxpayer carrying on a business from a charity, as part of community assistance, in the situations covered in the Determination, is not assessable income under either section 6-5 or 15-10 of the ITAA 1997. Such payments represent a gift to help people in difficult financial circumstances.

Consequently, the grant that you received from the farmers' group disaster relief fund as a result of the bushfires is considered to be a gift. It is not ordinary income under section 6-5 of the ITAA 1997 or statutory income under section 15-10 of the ITAA 1997, in accordance with TD 2006/22. The grant is therefore not assessable income (subsection 6-15(1) of the ITAA 1997).

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