Edited version of private advice

Authorisation Number: 1052255232196

Date of advice: 24 May 2024

Ruling

Subject: Disaster relief grants assessable income

Question

Are the Natural Disaster Relief Grant payments received by your partnership in the relevant financial year assessable income?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 20YY

The scheme commenced on:

1 July 20YY

Relevant facts and circumstances

You operate a primary production business in partnership.

Your primary production enterprise is located in a local government area that suffered direct damage as a result of floods and storms throughout the relevant calendar year.

The local government area is listed as having been severely impacted by these events in state natural disaster declarations.

The disbursing state authority made funding grants for the recovery and restitution of ongoing primary production businesses that had been damaged in these floods and storms. These disaster recovery grants were funded under the Disaster Recovery Funding Arrangements 2018 agreement between the Commonwealth and state governments for severe weather and flood damage.

To access funds under these programs you had to provide copies of invoices and receipts showing that you had paid for the costs of cleaning up and reinstating your business and affirm you intention to keep carrying on your business activity.

In the relevant financial year you received a number of disaster recovery grants from the state authority disbursing these funds.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 15-10

Income Tax Assessment Act 1997 Division 59

Income Tax Assessment Act 1997 section 59-85

Income Tax Assessment Act 1997 section 59-99

Reasons for decision

The Commissioner's view on the taxation treatment of government payments to industry including bounties, subsidies, grants, and rebates is discussed in Taxation ruling TR 2006/3 Income tax: government payments to industry to assist entities (including individuals) to continue, commence or cease business. Government payments allowing for continued operation of a business will either be:

•         assessable as ordinary income under section 6-5 of the ITAA 1997,

•         a bounty or subsidy assessable under section 15-10 of the ITAA 1997, or

•         declared non-assessable non-exempt income under a provision of Division 59 of the ITAA 1997.

References to bounties or subsidies in TR 2006/3 include grants that encourage business or address a detrimental effect on a business or trade.

Ordinary income is defined in section 6-5 of the ITAA 1997 as "income according to ordinary concepts". Typical examples of ordinary income include salary, wages, dividends, rent, and proceeds from carrying on a business. The monies paid to you by the state government disbursing authority under the Disaster Recovery Funding Arrangements 2018 agreement in the relevant financial year were to replenish or augment your capital. These grants were made because you had paid to clean up and restore your business so you could keep carrying on that business after the severe storms and floods you had experienced. As noted in paragraph 85 of TR 2006/3 "a payment by gift or subsidy to replenish or augment the recipient's capital is not income under ordinary concepts as it is not a product or incident of the recipient's income producing activity". These grants were not proceeds from your income producing activity and are not ordinary income assessable under section 6-5 of the ITAA 1997.

Bounties and subsidies received in relation to carrying on a business are assessable income under section 15-10 of the Income Tax Assessment Act 1997 (ITAA 1997) if they are not assessable as ordinary income under section 6-5 of the ITAA 1997. As the grant payments you received in the relevant financial year are not ordinary income assessable under section 6-5 of the ITAA 1997 they are assessable under section 15-10, unless declared non-assessable non-exempt under a provision of Division 59 of the ITAA 1997.

Division 59 of the ITAA makes provision for specific forms of income to be neither assessable income nor exempt income. Income that is non-assessable non-exempt is in effect tax free and expenses incurred in deriving this income are not deductible. A specific example of income made non-assessable non-exempt through the operation of the provisions in Division 59 would be disaster recover grants made under the Disaster Recovery Funding Arrangements 2018 agreement for damage caused by the floods and storms between 19 February 2021 and 31 March 2021 (section 59-99 of the ITAA 1997). There is no such provision for grants received under any of the programs in the relevant financial year.

The monies paid to you under the Disaster Recovery Funding Arrangements 2018 agreement in the relevant financial year are assessable income under section 15-10 of the ITAA 1997.

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