Edited version of private advice

Authorisation Number: 1051527978504

Date of advice: 14 June 2019

Ruling

Subject: Assessable income - industry assistance payments

Question

Can the amounts you received from the industry assistance payments be treated as a capital receipt?

Answer

No

This ruling applies for the following period:

Year ended 30 June 2018

The scheme commences on:

1 July 2017

Relevant facts and circumstances

You are in business.

You are not of retiring age.

Prior to June XXXX you owned a number of assets of the same kind in a particular industry.

Government Assistance Packages were available for the subject assets in your industry.

You applied and received a number of Assistance Package payments.

In early XXXX you unsuccessfully tried to sell one of your assets.

You sold one of your assets in XXXX.

You lease some of your other assets.

You wish to get out of the industry.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 15-10

Reasons for decision

The Commissioners view of "Government Payments to Industry" (GPI) to assist entities (including individuals) to continue, commence or cease business is found in TR 2006/3. In TR 2006/3 it states where payments are to:

·  provide income support;

·  assist with operating costs;

·  reimburse the cost of obtaining advice to evaluate current business operations;

·  assist due to an anticipated loss or diminution in value of a depreciating asset or other assets; assist with improving the viability, sustainability and profitability of a business adversely affected by legislative changes; or

·  allow restructuring to remain viable;

these are considered to be Government payments to continue business and are included as assessable income of the recipient under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) or section 15-10 of the ITAA 1997 in the income year in which they are derived.

The ATO released a factsheet relating to the assistance payments in your industry. The factsheet stated that the relevant assistance payments are assessable income, as they were not part of a buy-back arrangement or in exchange for the industry assets. It further stated that the payments were not capital in nature because they did not require asset holders to give up or sell their assets or otherwise bring their income producing asset to an end.

Other ATO guidance stated that the payments were generally not capital receipts, and were therefore assessable income of the recipient. However, an exception exists where an asset holder received assistance payments and around that time sold or attempted to sell industry assets so as to completely and permanently exit that industry. In those circumstances, the assistance payments could become part of capital gain or capital loss calculations for those assets so disposed.

Applied to the circumstances of the case, the taxpayer owned several assets.

The taxpayer applied for, and ultimately received payment for $XXX,XXX Assistance Packages.

The taxpayer sold one of his assets.

According to TR2006/3, the ATO factsheet and other ATO guidance, the funds received in the assistance packages are assessable income.

The taxpayer contended that the exception referred to in ATO guidance applied to their circumstances. While guidance is not usually referred to in private rulings, the Commissioner does uphold all information available to the public including the ATO website.

On the facts, the taxpayer attempted to sell (and finally sold) one asset only of the several assets held.

However, this did not demonstrate that the taxpayer took steps to permanently and completely exiting the industry, as required under the exception (as for example, selling all the industry assets held would have demonstrated).

Therefore the exception did not apply to the taxpayer's circumstances.

Accordingly, the funds the taxpayer received via the Assistance Packages are ordinary income under section 6-5 of the ITAA 1997 in the income year in which they were derived, and are not capital in nature.