Edited version of private advice

Authorisation Number: 1051604010716

Date of advice: 1 November 2019

Ruling

Subject: Income Tax - Government Grant

Question 1

Is the grant received from a Government department to alleviate the financial impact arising due to natural disaster and support ongoing business viability assessable under section 15-10 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

This ruling applies for the following period

Year ending 30 June 20XX

The scheme commences on

1 July 20XX

Relevant facts and circumstances

Your business was severely impacted by a natural disaster.

Due to the damage sustained your business suffered financially and was shut down.

The Government offered funds to your business to alleviate the financial impact to support the ongoing viability of the business (the Approved Purpose).

Relevant legislative provisions

Income Tax Assessment Act 1997, section 6-5

Income Tax Assessment Act 1997, section 6-10

Income Tax Assessment Act 1997, section 10-5

Income Tax Assessment Act 1997, section 15-10

Reasons for decision

Unless otherwise stated, all legislative references are to the Income Tax Assessment Act 1997 (ITAA 1997)

Summary

The grant is not ordinary income under section 6-5 and as you are carrying on a business the grant is assessable under section 15-10.

Detailed reasoning

Ordinary income

A payment or other benefit received by a taxpayer is included in their assessable income if it is income according to ordinary concepts.

Section 6-5 states, in part:

6-5(1) Your assessable income includes income according to ordinary concepts, which is called ordinary income.

6-5(2) If you are an Australian resident, your assessable income includes the ordinary income you derived directly or indirectly from all sources, whether in or out of Australia, during the income year.

ATO policy concerning government payments to industry is set out in Taxation Ruling TR 2006/3 Income tax: government payments to industry to assist entities (including individuals) to continue, commence or cease business (TR 2006/3). At paragraph 84, it provides that ordinary income generally falls within three categories:

·        income from providing personal services,

·        income from property, or

·        income from carrying on a business.

A frequent characteristic of income receipts is an element of periodicity, recurrence or regularity, even if the receipts are not received in relation to the carrying on of the daily business activities.

In your case you have received a grant. The grant does not constitute ordinary income. Whilst it will be paid in separate instalments it does not possess the necessary elements of periodicity, recurrence or regularity that are common to receipts of ordinary income.

Accordingly, the grant is not assessable under section 6-5.

Bounty or Subsidy

Section 6-10 states that your assessable income includes some amounts that are not 'ordinary income'. These amounts are 'statutory income'. Section 10-5 contains a summary list of the provisions which include amounts in your assessable income that are not ordinary income.

One of the statutory income provisions listed in section 10-5 is section 15-10, which deals with the treatment of bounties and subsidies.

Section 15-10 provides that:

Your assessable income includes a bounty or subsidy that:

a)     you receive in relation to carrying on a business; and

b)     is not assessable as ordinary income under section 6-5.

Payments of financial assistance by government are commonly referred to as 'bounties', 'subsidies' or 'grants'. As 'bounty', 'subsidy' and 'grant' are not defined terms, the ordinary meaning of these terms applies: Paragraph 93 of TR 2006/3.

In relation to carrying on a business

In your case, the Grant was provided to support you to alleviate the financial impact arising from a natural disaster and support ongoing business viability.

Therefore the payment is assessable under section 15-10.