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Edited version of your private ruling
Authorisation Number: 1012525532998
Ruling
Subject: Disaster grant
Question 1
Is the grant received included as assessable income?
Answer
No.
Question 2
Is the payment received subject to the recoupment provisions in Subdivision 20-A of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
No.
Question 3
Do the capital allowance provisions in Division 40 of the ITAA 1997 apply in relation to the decline in value of the depreciating asset?
Answer
Yes.
This ruling applies for the following period
Year ended 30 June 2013
The scheme commenced on
1 July 2012
Relevant facts and circumstances
You operate a small business and you were directly affected by a natural disaster.
When the mains electricity connection was lost, your equipment seized and you decided not to have it repaired.
You purchased a replacement asset.
You received a grant from a government department under the Natural Disaster Relief and Recovery Arrangements.
The Attorney General's Natural Disaster Relief and Recovery Arrangements determination provides, as part of a Category C measure, recovery grants for small businesses where the business sector is severely affected and the community risks losing essential businesses. Grants to small businesses are aimed at covering the cost of cleanup and reinstatement but not at providing compensation for losses.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 59-60
Income Tax Assessment Act 1997 Subdivision 20-A
Income Tax Assessment Act 1997 Division 40
Reasons for decision
Section 59-60 of the ITAA 1997 provides that certain payments made as recovery grants for small business or primary producers as part of a Category C measure that relates to a specific natural disaster under the Natural Disaster Relief and Recovery Arrangements are not assessable income and are not exempt income.
Therefore the grant that you received is non assessable and non exempt income.
The Explanatory Memorandum to the Taxation Laws Amendment (2011 Measures No.1) Act 2011 explains that this approach ensures that the grant is not subject to income tax, while avoiding interactions with other areas of the income tax law.
The effect of section 59-60 of the ITAA 1997 in the given circumstances is that the recoupment provisions in Subdivision 20-A of the ITAA 1997 do not apply.
The capital allowance provisions in Division 40 apply in relation to the decline in value of the depreciating asset.