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Ruling

Subject: Flood levy exemption

Question

Are you required to pay the Temporary Flood and Cyclone Reconstruction Levy (the flood levy) if your taxable income for the year ended 30 June 2012 exceeds $50,000?

Answer

Yes.

This ruling applies for the following period

Year ending 30 June 2012

The scheme commenced on

1 July 2011

Relevant facts and circumstances

You own an investment property which was affected by a natural disaster.

You have incurred expenses to rebuild the house to a liveable standard.

You have not received any financial assistance from the Federal or State Government or your insurer.

Your principal place of residence is not in the area affected by the natural disaster.

You will earn taxable income in excess of $50,000 in the year ended 30 June 2012.

You have not been affected by any other natural disaster in the 2010-11 or 2011-12 financial years.

Relevant legislative provisions

Income Tax (Transitional Provisions) Act 1997 Section 4-10 and

Income Tax - Temporary Flood and Cyclone Reconstruction Levy Exemptions 2011 Schedule 1.

Reasons for decision

Summary

As you do not meet the criteria for an exemption you are required to pay the flood levy if your taxable income for the 2011-12 financial year exceeds $50,000.

Detailed reasoning

The Australian Government has introduced the flood levy for the financial year ended 30 June 2012. The flood levy is designed to assist affected communities to recover from the recent natural disasters by providing additional funding to rebuild essential infrastructure, such as, roads, bridges and schools.

Section 4-10 of the Income Tax (Transitional Provisions) Act 1997 states you must pay the flood levy where your taxable income for the 2011-12 financial year exceeds $50,000 unless you are covered by the exemption provision. The flood levy is an additional amount to the normal income tax calculated on your taxable income.

The exemption provision requires the Minister to specify the classes of individuals in a legislative instrument who are not required to pay the levy. As stated in the legislative instrument Income Tax - Temporary Flood and Cyclone Reconstruction Levy Exemption 2011, you are not required to pay the levy if you are a member of one of the three exemption classes described below:

Class 1 - you were eligible for an Australian Government Disaster Recovery Payment (AGDRP) for a natural disaster that occurred during the 2010-11 or 2011-12 financial year and you received the payment by 30 June 2012

Class 2 - you were affected by:

· an event that occurred during the 2010-11 or 2011-12 financial year which was declared as a natural disaster under the Natural Disaster Relief and Recovery Arrangements (NDRRA), and

· you were at least 16 years old at the time of the disaster, and

· you were an Australian resident for social security reasons at the time of the disaster, and

· at least one of the following conditions applies:

· as a direct result of the natural disaster:

· you were seriously injured, or

· an Australian was killed and that Australian was an immediate member of your family, or

· your principal place of residence was destroyed or sustained major damage, or

· you were unable to gain access to your principal place of residence for at least 24 hours, or

· you were stranded in your principal place of residence for at least 24 hours, or

· as a result of the natural disaster, your principal place of residence was without electricity, water, gas, sewerage service or another essential service for at least 48 hours, or

· you were the principal carer of a child (within the meaning of the Social Security Act 1991(SSA)) to whom sub-paragraph (i) or (ii) applies.

Class 3 - you are a New Zealand citizen who received an ex-gratia payment from Centrelink by 30 June 2012 for a natural disaster that occurred in the 2010-11 or 2011-12 financial years.

Application to your circumstances

Your investment property was affected by a natural disaster. The natural disaster was determined to be a major disaster under section 36 of the SSA. This determination set the circumstances in which a person is adversely affected. The determination activated AGDRP assistance for people who were adversely affected by the results of the natural disaster.

A person applies for an AGDRP by nominating that their circumstances, including their partner and children's circumstances (if appropriate), satisfied the criteria for being adversely affected by the natural disaster. Persons confirmed as satisfying the criteria were eligible for an AGDRP under Part 2.24 of the SSA as a result of a natural disaster.

The AGDRP is a disaster related payment paid by the Federal Government. As you state you did not receive any disaster relief related payments from the Federal Government, it is accepted that you did not receive an AGDRP.

You are not exempt from paying the flood levy as you do not meet the conditions of any of the classes for exemption:

· Class 1 does not apply as the natural disaster that affected your investment property was a natural disaster for which the AGDRP assistance was activated and you did not receive an AGDRP

· Class 2 does not apply as you do not meet the conditions listed in paragraph (d) of this class, and

· Class 3 does not apply as you stated you did not receive disaster relief related payments which is a criteria for this exemption.

You were not affected by any other natural disasters in the 2010-11 or 2011-12 financial years.

It is accepted that you may have suffered financially as result of the natural disaster through the cost of rebuilding your investment property. However there is no discretion contained within the relevant legislation to exempt you from the flood levy on this basis.

Accordingly, you will be liable to pay the flood levy on that portion of your taxable income which exceeds $50,000 for the 2011-12 financial year.