GST issues registers

Primary production industry partnership

4 Government grants and payments

4.1 Farm Help

4.1.1 What is the income tax effect of the dairy structural adjustment program?

Question

What is the Income Tax effect of the Dairy Structural Adjustment Program?

Answer

Please refer to the following Fact Sheet on the Dairy Structural Adjustment Program:

Dairy Structural Adjustment Program "Acquisition and Disposal of a Payment Right Unit"

4.1.2 - Farm Help/ Farm Restart Scheme (PAYG & Income Tax).

Questions:

1. Income Support Payment

1.1 Will the Farm Help income support payment be assessable income to the recipient?

1.2 Is the Farm Help income support payment included in the instalment income of the recipient for PAYG instalments purposes?

1.3 Will the beneficiary rebate apply to the Farm Help income support payments?

1.4 Is the payment to be treated as income from primary production in applying the provisions of Division 392 ITAA97 - Long-term averaging of primary producers' tax liability?

2. Re-establishment Grant

2.1 Will the Farm Help re-establishment grant be assessable income to the recipient?

2.2 Will there be Capital Gains Tax implications on the receipt of the Farm Help re-establishment grant?

2.3 Is the Farm Help re-establishment grant included in the instalment income of the recipient for PAYG instalments purposes?

Background

Program Name Change

The Farm Household Support Amendment Act 2000 changed the program name of the Farm Family Restart Scheme to the Farm Help Supporting Families Through Change program, which required the word "restart" in the relevant legislation to be replaced with the words "farm help". Consequently the following refers to payments made under the Farm Help program. The payments made under the Farm Help Program are made by Centrelink under the Farm Household Support Act 1992.

Description of Program

The AAA - Farm Help - Supporting Families through Change program is one of a number of programs developed as a part of the Commonwealth Government's Agriculture - Advancing Australia (AAA) package. The scheme aims to provide:

•: financial assistance to farmers and their families who are experiencing financial hardship and who cannot borrow further against their assets;
•: tailored assistance to farm families to adjust and make decisions about their future in the industry;
•: access to skills retraining for an alternative career; and
•: access to professional advice on the future viability of their business and on employment opportunities if they choose to exit the industry.

This assistance allows farmers the choice of leaving the industry before their assets are severely depleted.

Types of benefits payable

Farm Help has four key components:

•: Income support payable for a maximum of 12 months at the Newstart Allowance rate with a partner component. Farmers who receive income support will be required to obtain professional advice on the farm's financial viability with three months of commencing payments.
•: A re-establishment grant of up to $45,000 which is payable when an eligible farmer leaves the farming industry. The grants are only available to farmers who applied for Farm Help before they sell their farm and before 30 November 2003. Farmers will generally then have 12 months to sell their farm subject to an assets test. Re-establishment grants are subject to an assets test on the sale of the farm. The grant will reduce by $2 for every $3 in assets in excess of $100,000. Any income support paid to farmers by Centrelink will also be deducted from the re-establishment grant.
•: An obligation to obtain professional advice on the future viability of the business, and career counselling where appropriate. Farm families will receive up to $3,000 (excluding GST) to obtain advice, and to help with any costs associated will obtaining advice such as travel or childcare. With the assistance of their Centrelink Farm Help contact, farmers and their families can undertake a 'Pathways Plan' which identifies their goals and how they may be achieved. The 'Pathways Plan' is compulsory for businesses assessed as nonviable.
•: A retraining grant of $3,500 is available to farmers and/or their partner who receive a re-establishment grant under the Farm Help program. Only one retraining grant is available for each re-establishment grant paid.

Farmers who have been on Farm Help Income Support for less than six months, and withdraw, are eligible to rejoin the program to complete their 12 months. Those who withdraw after six months cannot rejoin.

Answers and explanation:

1. Income support payment

Question 1.1:

Will the farm help income support payment be assessable income to the recipient?

Answer:

The payment is generally assessable income to the recipient, however the portion if any, of the payment made for rental assistance, or remote area allowance would not be assessable and is treated as exempt income.

Explanation:

Sub-section 6-5(2) Income Tax Assessment Act 1997 (ITAA97) specifies that where a person is an Australian resident, the person's assessable income includes the ordinary income the person derives directly or indirectly from all sources, whether in or out of Australia, during the income year.

The income support is paid on a regular (fortnightly) basis by Centrelink at the Newstart Allowance rate. The payment is to provide financial assistance to farmers who are suffering hardship. It is considered that the income support payments are income according to ordinary concepts and therefore assessable under section 6-5 ITAA97.

Section 6-20 ITAA97 specifies that an amount of ordinary income or statutory income is exempt income if it is made exempt from income tax by a specific provision. As the payment is being made under the Farm Household Support Act 1992 (FHSA), section 53-10 Item 3 ITAA97 exempts the supplementary amount of the income support payment. Section 53-15 ITAA97 defines the supplementary amount as being so much of the payment, which is included by way of rental assistance and remote area allowance.

Question 1.2:

Is the Farm Help income support payment included in the instalment income of the recipient for PAYG instalments purposes?

Answer:

• No, Farm Help income support payments are not included in the instalment income of the recipient for PAYG purposes.

Explanation:

As the Farm Help income support payment is a withholding payment under section 12-110 of Schedule 1 (TAA), the payment is specifically excluded from the instalment income of the recipient by subsection 45-120(3) of Schedule 1 (TAA).

Question 1.3:

Will the beneficiary rebate apply to the Farm Help income support payments?

Answer:

The beneficiary rebate will apply to the payments.

Explanation:

Amounts paid by way of exceptional circumstances relief payment or farm help income support under the FHSA are considered rebatable benefits as per sub-section 160AAA(1) Income Tax Assessment Act 1936 (ITAA36). Where a rebatable benefit is received, a beneficiary rebate calculated in accordance with the regulations is allowable (ss 160AAA(3) ITAA36).

Question 1.4:

Is the payment to be treated as income from primary production in applying the provisions of Division 392 ITAA97 - Long-term averaging of primary producers' tax liability?

Answer:

The payment would not be treated as income from primary production.

Explanation:

In calculating the effect of the provisions of Division 392 ITAA97 on a primary producer's tax liability, the amount of assessable primary production income of the taxpayer is utilised. Subsection 392-80(2) ITAA97 defines assessable primary production income as the amount of assessable income that was derived from, or resulted from, your carrying on a primary production business.

The Farm Help income support payments are a welfare payment made to farmers suffering financial hardship. A farmer is defined in section 3 FHSA as a person who:

has a right or interest in the land used for the purposes of a farm enterprise; and

contributes a significant part of his or her labour and capital to the farm enterprise; and

derives a significant part of his or her income from the farm enterprise.

Even though a person needs to be a farmer to be eligible for the income support, it is considered that the payments are not derived from, or resulted from, carrying on a primary production business. Therefore the payments are considered not to be income from primary production for the purposes of Division 392 of the ITAA97.

2. Re-establishment grant

Question 2.1:

Will the Farm Help re-establishment grant be assessable income to the recipient?

Answer:

The re-establishment grant is not assessable income to the recipient.

Explanation:

It is considered that the grant would not be assessable under 6-5 ITAA97, as the grant does not have the characteristics of ordinary income.

The payment is not received as part of the proceeds of the farming business, but rather, it is a once-off payment which is payable when an eligible farmer leaves the farming industry. It is considered that the payment is a capital receipt to the recipient.

Bounties and subsidies received in relation to carrying on a business which are not assessable as ordinary income, such as receipts of a capital nature, can be included in assessable income by section 15-10 ITAA97. As the payment is made to a farmer to leave the industry, it is considered that the payment is not received in relation to carrying on a business and therefore is not assessable under section 15-10 ITAA97.

Question 2.2:

Will there be capital gains tax implications on the receipt of the Farm Help re-establishment grant?

Answer:

There are no capital gain implications in receiving a re-establishment grant.

Explanation:

Section 118-37 ITAA97 states that a capital gain or loss, that is made from a CGT event relating directly to a re-establishment grant under section 52A of the Farm Household Support Act 1992, is to be disregarded. The Farm Help re-establishment grant is paid under section 52A of the Farm Household Support Act 1992. Therefore any capital gain or loss from the CGT event will be disregarded.

Question 2.3:

Is the Farm Help re-establishment grant included in the instalment income of the recipient for PAYG instalments purposes?

Answer:

The Farm Help re-establishment grant is not included in the instalment income of the recipient.

Explanation:

Instalment income for a period generally includes gross ordinary income derived during that period, provided that the ordinary income is also included in assessable income for the income year to which the period belongs (section 45-120 of the TAA). As the payment of the Farm Help re-establishment grant does not represent ordinary income, this amount will not be included in the instalment income of the recipient.

For certain entities, amounts representing statutory income are also included in assessable income if it is reasonably attributed to that period and is assessable income of the year that is or includes that period. These entities include eligible Approved Deposit Funds, eligible superannuation funds and pooled superannuation trusts. Statutory income would include a net capital gain. However, as the receipt of the Farm Help re-establishment grant has no capital gains implications, this payment does not result in an amount of statutory income being included in assessable income.

Therefore, regardless of the type of entity in receipt of the payment, the Farm Help re-establishment grant would not be included in the instalment income of the recipient.

4.2 Flood assistance

4.2.1 Flood assistance (PAYG & income tax)

Questions:

1. Income Support

1.1 Will the income support payments be assessable income to the recipient?

1.2 Will Income support payments paid as part of the flood assistance package be included in the instalment income of the recipient for PAYG instalments purposes?

1.3 Will the beneficiary rebate apply to the income support payments?

1.4 Is the payment to be treated as income from primary production in applying the provisions of Division 392 ITAA97 - Long-term averaging of primary producers' tax liability?

2. Interest rate subsidy

2.1 Will the interest rate subsidy be assessable?

2.2 Is the interest rate subsidy included in the instalment income of the recipient for PAYG instalments purposes?

2.3 Is the payment to be treated as income from primary production in applying the provisions of Division 392 ITAA97 - Long-term averaging of primary producers' tax liability?

2.4 Are there any Capital Gains Tax Implications of receiving the interest rate subsidy?

3. Replanting grant

3.1 Will the replanting grant be assessable?

3.2 Is the replanting grant included in the instalment income of the recipient for PAYG instalments purposes?

3.3 Is the payment to be treated as income from primary production in applying the provisions of Division 392 ITAA97 - Long-term averaging of primary producers' tax liability?

3.4 Are there any Capital Gains Tax Implications of receiving the replanting grant?

4. Small business grant

4.1 Will the small business grant be assessable?

4.2 Is the small business grant included in the instalment income of the recipient for PAYG instalments purposes?

4.3 Is the payment to be treated as income from primary production in applying the provisions of Division 392 ITAA97 - Long-term averaging of primary producers' tax liability?

4.4 Are there any Capital Gains Tax Implications of receiving the interest rate subsidy?

5. Fodder/Pasture grant for dairy farmers

5.1 Will the fodder/pasture grant be assessable to the recipient?

5.2 Is the fodder/pasture grant included in instalment income of the recipient for PAYG instalments purposes?

5.3 Is the payment to be treated as income from primary production in applying the provisions of Division 392 - Long-term averaging of primary producers' tax liability?

5.4 Are there any Capital Gains Tax Implications of receiving the interest rate subsidy?

Background

The Government announced a four-part Federal assistance package on 5th December 2000 for the flood-ravaged cropping zones of New South Wales and contiguous areas in southern Queensland.

Description of Flood Assistance Package

The package includes:

•: income support payments to assist farmers and their families;
•: interest rate subsidies of up to $100,000 on existing business loans as at 4th December 2000;
•: cash grants of up to $60,000 for replanting crops: and
•: grants of up to $10,000 to small and medium businesses to help them meet the cost of flood repairs.

The full details of the Flood Assistance Package payments are available from the Format of the Australian Business Number

Answers and explanation:

1. Income support

Description of payment

The income support payments will be paid fortnightly at a rate equivalent to the maximum rate of Newstart Allowance and Rent Assistance if applicable.

The payment will be subject to an income and assets test similar to that applied under the Newstart Allowance guidelines, however, farm assets will be excluded from the assets test.

Question 1.1:

Will the income support payments be assessable income to the recipient?

Answer:

The payment is generally assessable income to the recipient, however the portion, if any, of the payment made for rent assistance or remote area allowance would not be assessable and is treated as exempt income.

Explanation:

Subsection 6-5(2) Income Tax Assessment Act 1997 (ITAA97) specifies that where a person is an Australian resident, the person's assessable income includes the ordinary income the person derives directly or indirectly from all sources, whether in or out of Australia, during the income year.

Section 6-20 ITAA97 specifies that an amount of ordinary income or statutory income is exempt income if it is made exempt from income tax by a specific provision. As the payment is being made under the FHSA, section 53-10 Item 3 ITAA97 exempts the supplementary amount of the income support payment. Section 53-15 ITAA97 defines the supplementary amount as being so much of the payment, which is included by way of rental assistance and remote area allowance.

Question 1.2:

Will Income support payments paid as part of the flood assistance package be included in the instalment income of the recipient for PAYG instalments purposes?

Answer:

Income support payments paid as part of the flood assistance package represent ordinary income and would generally be included in the instalment income of the recipient for PAYG instalments purposes.

The exceptions are where:

•: a portion of the payment represents rental assistance or remote area allowance, which represent exempt income. This portion of the payment is not included in the assessable income of the income year to which the period belongs, and would therefore not be included in the instalment income of the recipient.
•: the income support payment is made to an individual. In this circumstance, the payment represents a withholding payment under section 12-110 of Schedule 1, the Taxation Administration Act 1953 (TAA) and is specifically excluded from instalment income (subsection 45-120(3) of the TAA). This is regardless of whether an amount has actually been withheld.

Explanation:

As the payment represents ordinary income, it will generally be included in the instalment income of the recipient to the extent that the income is included in assessable income for the income year to which the period belongs. The Income support payment paid as part of the flood relief package (excluding the portion of the payment representing rental assistance or remote area allowance) would generally be included in the instalment income of the recipient. However, if the recipient is an individual, the payment will not be included in the individual's instalment income, as it is a withholding payment under section 12-110 of the TAA.

Question 1.3:

Will the beneficiary rebate apply to the income support payments?

Answer:

The beneficiary rebate will apply to the payments.

Explanation:

Amounts paid by way of exceptional circumstances relief payment or farm help income support under the FHSA are considered rebatable benefits as per sub-section 160AAA(1) Income Tax Assessment Act 1936 (ITAA36). Where a rebatable benefit is received, a beneficiary rebate calculated in accordance with the regulations is allowable (subsection 160AAA(3) ITAA36).

Question 1.4:

Is the payment to be treated as income from primary production in applying the provisions of Division 392 ITAA97 - Long-term averaging of primary producers' tax liability?

Answer:

It is considered that the payment would not be treated as income from primary production.

Explanation:

The income support payments are a welfare payment made to farmers suffering financial hardship. A farmer is defined in section 3 FHSA as a person who:

has a right or interest in the land used for the purposes of a farm enterprise; and

contributes a significant part of his or her labour and capital to the farm enterprise; and

derives a significant part of his or her income from the farm enterprise.

2. Interest Rate Subsidy

Description of payment

Interest rate subsidies of up to $100,000 are available on debts existing at the 4th December 2000 that have been or are being used for business purposes in relation to the farm enterprise.

This support will help farmers access funds needed to ensure that the longer-term viability of the farm enterprise is assured.

Question 2.1:

Will the interest rate subsidy be assessable?

Answer:

The receipt of the subsidy would be treated as a receipt of assessable income.

Explanation:

The assessable income of a taxpayer includes a subsidy that is received in relation to carrying on a business and the subsidy is not assessable as ordinary income (section 15-10 ITAA97).

The interest rate subsidy is being paid to assist continuing farmers to service their farm debts, because widespread flooding has destroyed much of their crops and therefore their incomes will be greatly reduced. The subsidy will be calculated according to actual interest payable on farm debt.

As the subsidy assists continuing farmers to pay the interest payments on farm debt and there is a close relationship between the interest payments and the carrying on of a business on the farm, it is considered that the receipt of the subsidy is in relation to the carrying on of a business. Therefore the subsidy will be assessable as per section 15-10 ITAA97, if the subsidy is not assessable as ordinary income as per section 6-5 ITAA97.

If the subsidy is provided as an ordinary incident of carrying on a primary production business, the subsidy could be considered income according to ordinary concepts under section 6-5 (ITAA97).

Question 2.2:

Is the interest rate subsidy included in the instalment income of the recipient for PAYG instalments purposes?

Answer:

The interest rate subsidy is considered to be ordinary income and is therefore generally included in the instalment income of the recipient.

Explanation:

"Instalment income" is defined in section 45-120 of the TAA to include ordinary income derived during the period, but only to the extent that it is assessable income of the income year that is or includes that period. Ordinary income is defined in section 995-1 ITAA97 as having the meaning given by section 6-5 ITAA97. Section 45-120 of the TAA also includes certain other statutory income in instalment income (notably the statutory incomes of approved deposit funds , eligible superannuation funds, and pooled superannuation trusts).

For most PAYG instalment payers, income assessable under section 15-10 ITAA97 is not included in the instalment income of the recipient.

However if the subsidy is assessable under section 6-5 ITAA97, the income is ordinary income and would generally be included in the instalment income of the recipient.

Therefore, it is important to determine whether or not the payment is ordinary income.

Given the frequency of adverse natural events which affect farmers and that disaster relief is now becoming increasingly available to affected farmers, one may argue that the assistance provided is an ordinary incident of carrying on a primary production business. As such the subsidy could be considered income according to ordinary concepts.

The question whether or not a subsidy can be regarded as being ordinarily incidental to or arising out of the carrying on of a farming business was looked at in the Administrative Appeals Tribunal Case 22/94 ATC 225.

In that case, the taxpayer was a member of a cane-farming partnership, which purchased a farm with the help of a $293,000 loan from the Queensland Industry Development Corporation (QIDC). The partnership also obtained $33,310 from QIDC under the Sugar Industry Assistance Scheme (SIA Scheme). The money was used to reduce the QIDC loan. The amount under the SIA Scheme was calculated as the equivalent in present value terms to an interest subsidy of up to 50% of an agreed rate over a seven-year loan term (the maximum term). If the members of the partnership continued to be cane farmers throughout that seven-year period, and the conditions of the Scheme were complied with, the assistance would be converted into a non-repayable grant. In certain circumstances, however, the assistance was refundable, in which case the partnership would be required to refund the initial lump sum paid, reduced by one-seventh for each year, or part of a year, elapsed since the assistance was first provided.

It was held that the assistance under the SIA Scheme was a conditional loan, which became in part a grant or subsidy year-by-year to the extent that it ceased to be repayable. On each anniversary, when one-seventh of the assistance became non-repayable, that one-seventh assumed the mantle of income by way of a grant. It was derived at that point in time and thus became assessable income. As the assistance was provided so that the partnership could better service the QIDC loan, the assistance was income according to ordinary concepts and thus assessable under sec 25(1) ITAA36 (the predecessor of section 6-5 ITAA97). The one-off nature of the payment did not prevent it from being income.

Taxation Determination TD 98/28 looked at grants received by small business from the Commonwealth Government Gas Emergency Assistance Fund. It was determined that the payments are either assessable as income according to ordinary concepts or, being a bounty or subsidy, specifically assessable as statutory income under section 15-10 ITAA97.

As the interest rate subsidy is paid to aid the farm enterprise service farm debt, it is considered that the interest rate subsidy is ordinary income and is generally included in instalment income of the recipient for the purposes of PAYG. The exception is where the recipient is an individual. In this circumstance, the payment represents a withholding payment under section 12-110 of the TAA and is specifically excluded from instalment income (subsection 45-120(3) of the TAA). This is regardless of whether an amount has actually been withheld.

Question 2.3:

Is the payment to be treated as income from primary production in applying the provisions of Division 392 ITAA97- Long-term averaging of primary producers' tax liability?

Answer:

It is considered that the payment would be treated as income from primary production.

Explanation:

The payment is based on the actual interest paid on farm debt, it is considered that the payments are derived from, or resulted from, carrying on a primary production business. Therefore the payments are considered to be income from primary production for the purposes of Division 392 ITAA97.

Question 2.4:

Are there any Capital Gains Tax Implications of receiving the interest rate subsidy?

Answer:

No, there are no capital gains implications.

3. Replanting Grant

Description of payment

A replanting grant is available for eligible cropping enterprises of up to a maximum of $60,000, for crop growers to support the business in assisting with replanting either the summer and/or winter crops.

To be eligible the farm enterprise must:

•: under normal circumstances, derive at least 50% of its income from growing crops;
•: have lost at least 50% of its winter and/or summer crop to rain or flooding as a result of the floods in November 2000; and
•: be able to demonstrate that there is no reasonable capacity to fund crop planting from other income sources, either on-farm or off-farm - It is accepted that farmers applying for this grant who have been granted the Income Support payment will automatically meet this requirement. Farmers who have not qualified for Income Support may still be eligible, and
•: demonstrate a cumulative net loss over either 1999 and 2000, or for the 99/00 and 00/01 financial years in their cropping operation; and
•: show that 2/3 of variable costs are related to cropping; and
•: not have received an NDRA concessional interest loan for this event for the purposes of replanting (NDRA loans for other purposes would not affect eligibility).
•: Grants will be capped at a per hectare rate according to the type of crop being planted.

The following table represents the per hectare cap for replanting grants:

Crop	$/hectare
Wheat and other cereals	$120
Sorghum	$120
Canola	$200
Chickpeas	$230
Cotton	$400

Capping of the replanting of those crops not reflected in this table (where these are identified as eligible for assistance by the Governments decision ie. Horticultural crops) will be based on the minimum cap in the table. Applicants would be expected (but not required) to replant a similar type of crop to that lost (in terms of the per hectare cost of replanting). Where there is significant change, reimbursement will be based on the lower of either the actual cost of replanting or the reasonable cost of replanting the crop lost.

Farm enterprises will be paid the grant on the basis of invoices or receipts proving expenditure on replanting the crop (reimbursement). It is necessary for applicants to demonstrate actual costs to qualify for a replanting grant. Grant payments will usually be made in one payment.

There can be only one claim per farm enterprise or individual.

Question 3.1:

Will the replanting grant be assessable?

Answer:

The receipt of the grant would be treated as a receipt of assessable income.

Explanation:

The assessable income of a taxpayer includes a bounty or subsidy that is received in relation to carrying on a business and the bounty or subsidy is not assessable as ordinary income (section 15-10 ITAA97).

The replanting grant is a subsidy being paid to assist continuing farmers to replant crops destroyed by widespread flooding. The grant will be calculated according to actual costs incurred subject to certain maximum amounts.

As the grant assists continuing farmers to pay for the replanting of crops destroyed by the floods and there is a close relationship between the planting of crops and the carrying on of a business on the farm, it is considered that the receipt of the grant is in relation to the carrying on of a business. Therefore the grant will be assessable as per section 15-10 ITAA97, if the grant is not assessable as ordinary income as per section 6-5 ITAA97.

If the grant is provided as an ordinary incident of carrying on a primary production business, the subsidy could be considered income according to ordinary concepts under section 6-5 ITAA97.

Question 3.2:

Is the replanting grant included in the instalment income of the recipient for PAYG instalments purposes?

Answer:

Where the payment of the replanting grant is considered to be ordinary income (see above), it would be included in the instalment income of the recipient.

Explanation:

"Instalment income" is defined in section 45-120 of the TAA to include ordinary income derived during the period, but only to the extent that it is assessable income of the income year that is or includes that period. Ordinary income is defined in section 995-1 ITAA97 as having the meaning given by section 6-5 ITAA97. Section 45-120 of the TAA also includes certain other statutory income in instalment income (notably the statutory incomes of approved deposit funds, eligible superannuation funds, and pooled superannuation trusts).

For most PAYG instalment payers, income assessable under section 15-10 ITAA97 is not included in instalment income of the recipient.

However if the grant is assessable under section 6-5 ITAA97, the income is ordinary income and is generally included in the instalment income of the recipient.

Therefore it is important to determine whether the payment is ordinary income or not.

As the replanting grant is paid to aid the farm enterprise replant crops destroyed by flooding, it is considered that the replanting grant is ordinary income and therefore generally included in the instalment income of the recipient for the purposes of PAYG. The exception is where the recipient is an individual. In this circumstance, the payment represents a withholding payment under section 12-110 of the TAA and is specifically excluded from instalment income (subsection 45-120(3) of the TAA). This is regardless of whether an amount has actually been withheld.

Question 3.3:

Is the payment to be treated as income from primary production in applying the provisions of Division 392 ITAA97 - Long-term averaging of primary producers' tax liability?

Answer:

It is considered that the payment would be treated as income from primary production.

Explanation:

The payment is based on the actual expenses of replanting destroyed crops (subject to maximum amounts), it is considered that the payments are derived from, or resulted from, carrying on a primary production business. Therefore the payments are considered to be income from primary production for the purposes of Division 392 of the ITAA97.

Question 3.4:

Are there any capital gains tax Implications of receiving the replanting grant?

Answer:

No, there are no capital gains implications.

4. Small business grant

Description of payment

A small business grant is available for eligible businesses of up to a maximum of $10,000, to reimburse the costs associated with restoring the business premises and/or business equipment after flood inundation.

A small business is defined as one, which has less than 199 employees. Generally, a farm enterprise will not be eligible for this grant. Business, which is part of a national chain (apart from franchises), will not be eligible.

Where equipment has been bogged, costs associated with releasing the equipment may be claimed under this program.

Businesses will not be eligible if they have received NDRA assistance for this event and for this purpose.

The grant is based on actual expenditure with the business required to produce receipts of costs incurred.

Question 4.1:

Will the small business grant be assessable?

Answer:

The receipt of the grant would be treated as a receipt of assessable income.

Explanation:

The assessable income of a taxpayer includes a subsidy that is received in relation to carrying on a business and the subsidy is not assessable as ordinary income (section 15-10 ITAA97).

The small business grant is being paid to assist small business (Centrelink believes that generally farm enterprises will not be eligible for the grant) restore business premises and/or business equipment after flood inundation. The grant will be calculated according to actual expenditure incurred by the small business.

As the grant is paid to small businesses to be able to recommence trading operations and there is a close relationship between the repairs to premises and equipment and the carrying on of a business, it is considered that the grant is a subsidy received in relation to the carrying on of a business. Therefore the grant will be assessable as per section 15-10 ITAA97, if the grant is not assessable as ordinary income as per section 6-5 ITAA97.

If the grant is provided as an ordinary incident of carrying on a primary production business, the grant could be considered income according to ordinary concepts under section 6-5 ITAA97.

It is unnecessary here to determine whether the grant is assessable under section 6-5 or 15-10 ITAA97, it is sufficient to conclude that the subsidy is assessable.

Question 4.2:

Is the small business grant included in the instalment income of the recipient for PAYG instalments purposes?

Answer:

Where the small business grant is considered to be ordinary income, it is included in the instalment income of the recipient if the recipient is continuing to carry on the business.

Explanation:

"Instalment income" is defined in section 45-120 of the TAA to include ordinary income derived during the period, but only to the extent that it is assessable income of the income year that is or includes that period. Ordinary income is defined in section 995-1 ITAA97 as having the meaning given by section 6-5 ITAA97. Section 45-120 of the TAA also includes certain other statutory income in instalment income (notably the statutory incomes of ADF's, eligible superannuation funds, and pooled superannuation trusts).

For most PAYG instalment payers, income assessable under section 15-10 ITAA97 is not included in the instalment income of the recipient.

However if the grant is assessable under section 6-5 (ITAA97), the income is ordinary income and would generally be included in the instalment income of the recipient.

Therefore it is important to determine whether the payment is ordinary income or not.

As the small business grant is paid to reimburse the costs associated with restoring the business premises and/or business equipment after flood inundation, it is considered that the grant is ordinary income and therefore is generally included in the instalment income of the recipient for the purposes of PAYG if the recipient is continuing to carry on the business. The exception is where the recipient is an individual. In this circumstance, the payment represents a withholding payment under section 12-110 of the TAA and is specifically excluded from instalment income (subsection 45-120(3) of the TAA). This is regardless of whether an amount has actually been withheld.

Question 4.3:

Is the payment to be treated as income from primary production in applying the provisions of Division 392 ITAA97- Long-term averaging of primary producers' tax liability?

Answer:

It is considered that the payment would be treated as income from primary production.

Explanation:

Centrelink believes that generally farm enterprises will not be eligible for this grant.

Where a primary producer is able to obtain the grant, as the payment is based on the actual expenditure needed to restore business assets, it is considered that the payments are derived from, or resulted from, carrying on a primary production business. Therefore the payment is considered to be income from primary production for the purposes of Division 392 of the ITAA97.

Question 4.4:

Are there any capital gains tax Implications of receiving the interest rate subsidy?

Answer:

No, there are no capital gains implications.

In addition to the above four flood relief measures, there is also a Fodder/Pasture Grant for Dairy Farmers affected by the flooding in New South Wales or southern Queensland areas.

The full details of the Fodder/Pasture Grant for Dairy Farmers payments as per the Centrelink website.

5. Fodder/Pasture Grant for dairy farmers

Description of payment

A fodder/pasture grant is now available for eligible dairy farm enterprises of up to a maximum of $15,000, to reimburse the costs associated with purchasing fodder/stock feed, or to replant improved pasture damaged by the rain or flooding.

An eligible dairy farm enterprise is defined as one which derives the majority of their income from dairying and which has suffered loss or damage to improved pasture, fodder or stock feed due to the November 2000, or January to March 2001 floods. To be eligible, the dairy farming enterprise (or the affected area) must be located in a declared area, and that declaration must relate to rainfall or flooding caused during November 2000 or January to March 2001. Natural Disaster Relief Arrangements (NDRA) declared areas must be in central and northern New South Wales (NSW) or may be southern Queensland areas that are contiguous with a NSW declared area. Farm enterprises will not be eligible if they have received NDRA assistance for this event and for this purpose or if they can recover the loss by way of insurance.

The grant is based on actual expenditure with the farm enterprise required to produce receipts of costs incurred. Grants used for the replacement of pasture would be capped at a rate of $200/hectare.

Question 5.1:

Will the fodder/pasture grant be assessable to the recipient?

Answer:

The receipt of the grant would be treated as a receipt of assessable income.

Explanation:

The assessable income of a taxpayer includes a subsidy that is received in relation to carrying on a business and the subsidy is not assessable as ordinary income (section 15-10 ITAA97).

The grant is being paid to assist continuing dairy farmers feed stock or replant improved pasture damaged by the flooding. The grant will be calculated according to actual expenses paid subject to maximum amounts.

As there is a close relationship between expenditure on fodder and improved pasture and the carrying on of a business on the farm, it is considered that the receipt of the grant is in relation to the carrying on of a business. Therefore the subsidy will be assessable as per section 15-10 ITAA97, if the subsidy is not assessable as ordinary income as per section 6-5 ITAA97.

If the subsidy is provided as an ordinary incident of carrying on a primary production business, the subsidy could be considered income according to ordinary concepts under section 6-5 ITAA97.

Question 5.2:

Is the fodder/pasture grant included in instalment income of the recipient for PAYG instalments purposes?

Answer:

Where the fodder/pasture grant represents ordinary income, it would be included in instalment income of the recipient.

Explanation:

"Instalment income" is defined in section 45-120 of the TAA to include ordinary income derived during the period, but only to the extent that it is assessable income of the income year that is or includes that period. Ordinary income is defined in section 995-1 ITAA97 as having the meaning given by section 6-5 ITAA97. Section 45-120 of the TAA also includes certain other statutory income in instalment income (notably the statutory incomes of ADF's, eligible superannuation funds, and pooled superannuation trusts).

For most PAYG instalment payers, income assessable under section 15-10 ITAA97 is not included in the instalment income of the recipient.

However if the grant is assessable under section 6-5 ITAA97, the income is ordinary income and would generally be included in the instalment income of the recipient.

Therefore it is important to determine whether the payment is ordinary income or not.

As the fodder/pasture grant is paid to aid the farm enterprise feed stock or replant improved pasture, it is considered that the grant is ordinary income and therefore is generally included in the instalment income of the recipient for the purposes of PAYG. The exception is where the recipient is an individual. In this circumstance, the payment represents a withholding payment under section 12-110 of the TAA and is specifically excluded from instalment income (subsection 45-120(3) of the TAA). This is regardless of whether an amount has actually been withheld.

Question 5.3:

Is the payment to be treated as income from primary production in applying the provisions of Division 392 ITAA97- Long-term averaging of primary producers' tax liability?

Answer:

It is considered that the payment would be treated as income from primary production.

Explanation:

As the payment is based on the actual expenditure made in providing fodder to the dairy herd or to replant improved pasture (subject to maximum amounts), it is considered that the payments are derived from, or resulted from, carrying on a primary production business. Therefore the payments are considered to be income from primary production for the purposes of Division 392 of the ITAA97.

Question 5.4:

Are there any Capital Gains Tax Implications of receiving the interest rate subsidy?

Answer:

No, there are no capital gains implications.

4.3 Deregulation

4.3.1 Capital loss on quotas

The legislation deregulating the dairy industry in Western Australia, Queensland and New South Wales has the effect of cancelling the existing quotas.

Accordingly, for cancelled quotas acquired after 19 September 1985, a capital loss equal to the cost base of the quota is made. No additional action is necessary to realise the capital loss. However, for quotas acquired before 20 September 1985 no capital loss is available.

If any compensation becomes payable for the cancellation of quotas the capital loss will be reduced by the amount of the compensation. The Dairy Structural Adjustment Program (DSAP) amounts and the Dairy Exit Payment (DEP) amounts (see background) are not compensation for the cancellation of the quotas.

Capital losses made from the cancellation of the quotas, as a result of the deregulation of the dairy industry, are made in the 2000/2001 income year because the quotas are cancelled in that year.

Capital losses can only reduce current and future capital gains. There is no time limit by which the capital losses must be offset.

Questions & Decision:

(a) (i) What happens to the quotas once the regulations are removed?

Decision:

Once the regulations are removed the quotas are cancelled.

Question:

(a) (ii) After deregulation by the States quotas will no longer exist. Does this mean that they have zero value and holders can realise a capital loss?

Decision:

For cancelled quotas acquired after 19 September 1985, a capital loss equal to the cost base of the quota is made. However, for quotas acquired before 20 September 1985 no capital loss is available.

Question:

(b) (i) Do quotas have to be sold to realise any capital loss?

Decision:

No. The cancellation of a quota will give rise to a capital loss.

Question:

(b) (ii) Is the capital loss attributable to the 1999/2000 income year or the 2000/2001 income year? Decision:

The capital loss is attributable to the 2000/2001 income year because the quotas are cancelled in that year.

Question:

No. However, any compensation payable for the cancellation of a quota will reduce the capital loss by the amount of the compensation. (The DSAP amounts and the DEP amounts are not compensation for the cancellation of the quotas).

Question:

Decision:

Capital losses can only reduce current and future capital gains. There is no time limit by which the capital losses must be offset.

Background:

•

The dairy industry regulatory environment was divided into two broad categories based on whether milk is used as liquid milk for human consumption (market milk) or in the manufacture of dairy products (manufacturing milk). Manufacturing milk arrangements were underpinned by Commonwealth legislation that provided for the operation of the Domestic Market Support (DMS) scheme. The DMS scheme ended on 1 July 2000.

•

Market milk arrangements were underpinned by State legislation and provided a guaranteed producer price for milk used as market milk that was about double the producer price for manufacturing milk. The mechanisms for guaranteeing this premium varied between each State and Territory. Quota arrangements operated in New South Wales, Queensland and Western Australia while Victoria, South Australia and Tasmania operated different schemes which provided for equitable sourcing and payment for market milk.

•

The Commonwealth has facilitated the provision of a $1.74 billion package to assist farmers to make the transition to a deregulated environment which is to be funded via a retail levy of 11 cents/litre and which provides for 2 types of payments to farmers as follows:

•: Dairy Structural Adjustment Program (DSAP) payments - these are quarterly payments to be received over an 8 year period. They have been based on farmers 1998-99 milk deliveries and calculated at the rate of 46.23 cents per litre for market milk and an average 8.96 cents per litre for manufacturing milk;
•: Dairy Exit Payments (DEP) - available for farmers who choose to leave agriculture.

•

The Dairy Industry Adjustment Act 2000 (Cth) (DIAA) provides for the following treatment of the 2 types of payments:

•: DSAP payments - treated as subsidies and therefore assessable under s 15-10 of the Income Tax Assessment Act 1997 (ITAA97);
•: DEP - the DIAA amended the CGT provisions in the ITAA 1997 (section 118-37) to provide that any capital gain or capital loss made in relation directly to a DEP is disregarded.

•

The Commonwealth package was conditional on all States and Territories agreeing to remove their regulated farm gate pricing arrangements. This has now been done via the repeal of legislation in each State.

4.4 Relief payments

4.4.1 Exceptional Circumstances Relief Payments

Questions:

1. Will the Exceptional Circumstances Relief Payment (relief payment) be assessable income to the recipient?

2. Will the exceptional circumstances relief payment be included in the instalment income of the recipient?

3. Will the beneficiary rebate apply to the Exceptional Circumstances Relief Payment?

4. Is the payment to be treated as income from primary production in applying the provisions of Division 392 ITAA 1997 - Long-term averaging of primary producers' tax liability?

Background:

Description of Program

The Exceptional Circumstances Relief Payment (ECRP) is delivered by Centrelink on behalf of the Department of Agriculture, Fisheries and Forestry - Australia. The payment provides assistance to farmers living in 'exceptional circumstances' affected area who are having difficulty meeting family and personal living expenses.

To qualify for Exceptional Circumstances Relief Payment, a person must:

•: be a farmer,
•: be over 18 years old,
•: be an Australian resident and living in Australia, and
•: hold a current Exceptional Circumstances certificate issued by the State Rural Adjustment Scheme Authority, which identifies that the farm enterprise is in an 'exceptional circumstances' affected area.

Description of Payment

Exceptional Circumstances Relief Payment is paid fortnightly at a rate equivalent to Newstart Allowance and, where applicable, Partner Allowance.

Payment is subject to the same income and assets tests applying to Newstart Allowance. However, the farm assets, including the farmer's superannuation and life insurance, are exempt from the assets test. Proceeds from the forced disposal of livestock due to exceptional circumstances are excluded from the income test. In this case, farmers will be required to deposit the proceeds from the forced sale in either a Farm Management Deposit or a deposit with a term of at least three months with a bank, building society, credit union or other institution that receives money on deposit.

Answer and explanation:

1. Will the Exceptional Circumstances Relief Payment (relief payment) be assessable income to the recipient?

Answer:

Explanation:

Sub-section 6-5(2) Income Tax Assessment Act 1997 (ITAA 1997) specifies that where a person is an Australian resident, the person's assessable income includes the ordinary income the person derives directly or indirectly from all sources, whether in or out of Australia, during the income year.

The relief payment is paid on a regular (fortnightly) basis by Centrelink at the Newstart Allowance rate. The payment is to provide financial assistance to farmers who are suffering hardship. It is considered that the relief payments are income according to ordinary concepts and therefore assessable under section 6-5 ITAA 1997.

Section 6-20 ITAA 1997 specifies that an amount of ordinary income or statutory income is exempt income if it is made exempt from income tax by a specific provision. As the payment is being made under the Farm Household Support Act 1992 (FHSA), section 53-10 Item 3 ITAA 1997 exempts the supplementary amount of the income support payment. Section 53-15 ITAA 1997 defines the supplementary amount as being so much of the payment which is included by way of rental assistance and remote area allowance.

2. Will the exceptional circumstances relief payment be included in the instalment income of the recipient?

Instalment income generally includes ordinary income derived during the period, but only to the extent that it is assessable income of the income year that is or includes that period. However, instalment income excludes withholding payments (except those for non-quotation of a TFN or ABN). An entity must withhold an amount from a payment it makes to an individual under section 12-110 of Schedule 1, TAA if the payment is specified in section 53-10 of the ITAA 1997. Please note that this only applies to the portion of the amount excluding the supplementary amount (rent assistance or remote area allowance paid to an individual),

Hence, if the payment is made to an individual, the exceptional circumstances relief payment (including the supplementary amount) would not be included in the instalment income of the recipient. If the payment is made to another entity, the payment would be included in the instalment income of the recipient (excluding any supplementary amount).

3. Will the beneficiary rebate apply to the Exceptional Circumstances Relief Payment?

Answer:

The beneficiary rebate will apply to the payments.

Explanation:

Amounts paid by way of exceptional circumstances relief under the FHSA are considered rebatable benefits as per sub-section 160AAA(1) Income Tax Assessment Act 1936 (ITAA36). Where a rebatable benefit is received, a beneficiary rebate calculated in accordance with the regulations is allowable (subsection 160AAA(3)). 4. Is the payment to be treated as income from primary production in applying the provisions of Division 392 ITAA 1997 - Long-term averaging of primary producers' tax liability?

Answer:

The payment would not be treated as income from primary production.

Explanation:

In calculating the effect of the provisions of Division 392 ITAA 1997 on a primary producer's tax liability, the amount of assessable primary production income of the taxpayer is utilised. Subsection 392-80(2) ITAA 1997 defines assessable primary production income as the amount of assessable income that was derived from, or resulted from, your carrying on a primary production business.

The Exceptional Circumstances Relief Payment is a welfare payment made to farmers suffering financial hardship. Even though a person needs to be a farmer to be eligible for the income support, it is considered that the payments are not derived from, or resulted from, carrying on a primary production business. Therefore the payments are considered not to be income from primary production for the purposes of Division 392.

4.5 Sugar

4.5.1 Sugar Industry Assistance Package

Questions:

1. Interest Rate Subsidy (on loans used for planting cane crops)

1.1 Will the interest rate subsidy be assessable?

1.2 Is the receipt of the subsidy considered instalment income for the purposes of the Pay As You Go (PAYG) instalments system?

1.3 Is the payment to be treated as income from primary production in applying the provisions of Division 392 - Long-term averaging of primary producers' tax liability?

1.4 Are there any Capital Gains Tax implications from receiving the interest rate subsidy?

2. Interest Rate Subsidy (loans associated with the business of producing cane)

2.1 Will the interest rate subsidy be assessable?

2.2 Is the receipt of the subsidy considered instalment income for the purposes of the Pay As You Go (PAYG) instalments system?

2.3 Is the payment to be treated as income from primary production in applying the provisions of Division 392 - Long-term averaging of primary producers' tax liability?

2.4 Are there any Capital Gains Tax implications from receiving the interest rate subsidy?

3. Income support payment

3.1 Will the income support payment under the Sugar Industry Assistance Package be assessable income to the recipient?

3.2 Will the income support payment under the Sugar Industry Assistance package be included in the instalment income of the recipient?

3.3 Will the beneficiary rebate apply to the income support payments?

3.4 Is the payment to be treated as income from primary production in applying the provisions of Division 392 ITAA 1997 - Long-term averaging of primary producers' tax liability?

4. Vouchers to access financial counselling services

4.1 Will the provision of the voucher be considered assessable income to the recipient?

Background:

Description of Program

The package includes:

•: Interest subsidies on loans of up to $50,000 used to plant cane crops in the 2000/01 and 2001/02 seasons;
•: Interest subsidies on new and existing loans of up to $100,000 associated with the business of producing cane;
•: Income support payments from 1 September 2000 to assist cane farmers and their families; and
•: Vouchers of up to $1,000 per farmer to access financial counselling services, where these services are not already provided.

Applicants will need to be an eligible cane grower. That is, the applicant must:

•: have been a cane grower for at least 2 years immediately prior to lodging the claim;
•: have a right or interest in the land used for the purposes of a sugar industry enterprise:
•: and meet two of the following criteria:
•: contribute the majority of his/her labour to the cane farm enterprise;
•: contribute the majority of his/her capital to the cane farm enterprise; and
•: derive the majority of their income from cane farming.

Answers and Explanation:

1. Interest Rate Subsidy (on loans used for planting cane crops) -

Description of payment

The interest rate subsidies are available on loans of up to $50,000 to be used to meet expenses necessary for replanting crops in 2000/01 and 2001/02.

The support will help cane growers access funds needed to either plant or replace diseased cane.

Question 1.1:

Will the interest rate subsidy be assessable?

Answer:

The receipt of the subsidy would be treated as a receipt of assessable income.

Explanation:

The assessable income of a taxpayer includes a subsidy that is received in relation to carrying on a business and the subsidy is not assessable as ordinary income (section 15-10 Income Tax assessment Act 1997 (ITAA 1997)).

The interest rate subsidy is paid to assist continuing farmers to plant or replace diseased cane crops.

As the subsidy assists cane farmers to pay the interest payments on loans made to plant sugar cane, and there is a close relationship between the interest payments and the carrying on of a business on the farm, it is considered that the receipt of the subsidy is in relation to the carrying on of a business. Therefore the subsidy will be assessable as per section 15-10 ITAA 1997, if the subsidy is not assessable as ordinary income as per section 6-5 ITAA 1997.

If the subsidy is provided as an ordinary incident of carrying on a primary production business, the subsidy could be considered income according to ordinary concepts under section 6-5 ITAA 1997.

It is considered that the subsidy is assessable under sections 6-5 ITAA 1997 [see reasons to answer question 2, immediately below].

Question 1.2:

Is the receipt of the subsidy considered instalment income for the purposes of the Pay As You Go (PAYG) instalments system?

Answer:

Yes, it would be included in the instalment income of the recipient.

Explanation:

"Instalment income" is defined in section 45-120 of Schedule 1 Taxation Administration Act 1953 (TAA) to mean ordinary income derived during the period, but only to the extent that it is assessable income of the income year that is or includes that period. Ordinary income is defined in section 995-1 ITAA 1997 as having the meaning given by section 6-5 ITAA 1997.

For most farm enterprises, income assessable under section 15-10 ITAA 1997 is not considered instalment income.

However if the subsidy is assessable under section 6-5 ITAA 1997, the income is ordinary income and would be considered instalment income.

Therefore it is important to determine whether the payment is ordinary income or not.

Given the frequency of adverse natural events which affect farmers and given that disaster relief is now becoming increasingly available to affected farmers, one may argue that the assistance provided is an ordinary incident of carrying on a primary production business. As such the subsidy could be considered income according to ordinary concepts.

In that case, the taxpayer was a member of a cane-farming partnership which purchased a farm with the help of a $293,000 loan from the Queensland Industry Development Corporation (QIDC). The partnership also obtained $33,310 from QIDC under the Sugar Industry Assistance Scheme (SIA Scheme). The money was used to reduce the QIDC loan. The amount under the SIA Scheme was calculated as the equivalent in present value terms to an interest subsidy of up to 50% of an agreed rate over a seven-year loan term (the maximum term). If the members of the partnership continued to be cane farmers throughout that seven-year period, and the conditions of the Scheme were complied with, the assistance would be converted into a non-repayable grant. In certain circumstances, however, the assistance was refundable, in which case the partnership would be required to refund the initial lump sum paid, reduced by one-seventh for each year, or part of a year, elapsed since the assistance was first provided.

It was held that the assistance under the SIA Scheme was a conditional loan which became in part a grant or subsidy year-by-year to the extent that it ceased to be repayable. On each anniversary, when one-seventh of the assistance became non-repayable, that one-seventh assumed the mantle of income by way of a grant. It was derived at that point in time and thus became assessable income. As the assistance was provided so that the partnership could better service the QIDC loan, the assistance was income according to ordinary concepts and thus assessable under sec 25(1) ITAA36 (the predecessor of section 6-5). The one-off nature of the payment did not prevent it from being income.

As the interest rate subsidy is paid to assist farmers plant cane in their cane farming business, it is considered that the interest rate subsidy is ordinary income and therefore is included in the instalment income of the recipient for the purposes of PAYG.

Question 1.3:

Is the payment to be treated as income from primary production in applying the provisions of Division 392 - Long-term averaging of primary producers' tax liability?

Answer:

It is considered that the payment would be treated as income from primary production.

Explanation:

The payment is based on the interest paid on loans used to plant cane crops. It is considered that the payments are derived from, or resulted from, carrying on a primary production business of cane farming. Therefore the payments are considered to be income from primary production for the purposes of Division 392.

Question 1.4:

Are there any Capital Gains Tax implications from receiving the interest rate subsidy?

Answer:

No, Capital Gains Tax will not apply.

2. Interest Rate Subsidy (loans associated with the business of producing cane) -

Description of payment

The general interest rate subsidies are available on new loans or restructuring of existing loans up to a maximum of $100,000, for cane growers to support the business of growing cane.

The purpose of the loan cannot include new capital purchases, but past capital expenses will be acceptable as part of restructuring existing loans.

The subsidies will be paid up-front (each year for next two years) directly to the loan account of the customer.

There can be only one claim per farm enterprise or individual.

The interest rate subsidy is subject to an off-farm assets test (limit $189,500 excluding bona fide superannuation and life insurance policies)

Question 2.1:

Will the interest rate subsidy be assessable?

Answer:

The receipt of the subsidy would be treated as a receipt of assessable income.

Explanation:

The assessable income of a taxpayer includes a subsidy that is received in relation to carrying on a business and the subsidy is not assessable as ordinary income (section 15-10 ITAA 1997).

The interest rate subsidy is being paid to assist cane growers in their business of growing cane.

As the subsidy assists cane farmers to pay the interest payments on loans made as part of the cane growing business, and there is a close relationship between the interest payments and the carrying on of a business on the farm, it is considered that the receipt of the subsidy is in relation to the carrying on of a business. Therefore the subsidy will be assessable as per section 15-10 ITAA 1997, if the subsidy is not assessable as ordinary income as per section 6-5 ITAA 1997.

If the subsidy is provided as an ordinary incident of carrying on a primary production business, the subsidy could be considered income according to ordinary concepts under section 6-5 ITAA 1997.

It is considered that the subsidy is assessable under sections 6-5 ITAA 1997 [see answer to question 2, immediately below].

Question 2.2:

Is the receipt of the subsidy considered instalment income for the purposes of the Pay As You Go (PAYG) instalments system?

Answer:

Yes, it would be included in the instalment income of the recipient.

Explanation:

"Instalment income" is defined in section 45-120 of Schedule 1 TAA to mean ordinary income derived during the period, but only to the extent that it is assessable income of the income year that is or includes that period. Ordinary income is defined in section 995-1 ITAA 1997 as having the meaning given by section 6-5 ITAA 1997.

For most farm enterprises, income assessable under section 15-10 ITAA 1997 is not considered instalment income.

However if the subsidy is assessable under section 6-5 ITAA 1997, the income is ordinary income and would be considered instalment income.

Therefore it is important to determine whether the payment is ordinary income or not.

As the interest rate subsidy is paid to assist farmers carry on a business of cane farming, it is considered that the interest rate subsidy is ordinary income as per section 6-5 ITAA 1997 and would therefore be included in the instalment income of the recipient for the purposes of PAYG.

Question 2.3:

Is the payment to be treated as income from primary production in applying the provisions of Division 392 - Long-term averaging of primary producers' tax liability?

Answer:

It is considered that the payment would be treated as income from primary production.

Explanation:

The payment is based on the interest paid on loans used in carrying on a business of cane farming. As such, it is considered that the payments are derived from, or resulted from, carrying on a primary production business of cane farming. Therefore the payments are considered to be income from primary production for the purposes of Division 392.

Question 2.4:

Are there any Capital Gains Tax implications from receiving the interest rate subsidy?

Answer:

No, Capital Gains Tax will not apply.

3. Income Support Payment -

Description of the payment

The income support payment will be paid fortnightly at a rate equivalent to the maximum rate of Newstart Allowance and Rent Assistance if applicable.

The payment will be subject to an income and assets test similar to that applied under the Newstart Allowance guidelines, however, farm assets will be excluded from the assets test.

Income will include an estimate of the 2000/2001 farming income and all off-farm income.

Question 3.1:

Will the income support payment under the Sugar Industry Assistance Package be assessable income to the recipient?

Answer:

The payment is assessable income to the recipient.

Explanation:

Sub-section 6-5(2) Income Tax Assessment Act 1997 ITAA 1997 specifies that where a person is an Australian resident, the person's assessable income includes the ordinary income the person derives directly or indirectly from all sources, whether in or out of Australia, during the income year.

Section 6-20 ITAA 1997 specifies that an amount of ordinary income or statutory income is exempt income if it is made exempt from income tax by a specific provision.

Where a payments is made under the Farm Household Support Act 1992 (FHSA), section 53-10 Item 3 ITAA 1997 exempts the supplementary amount of the income support payment. Section 53-15 ITAA 1997 defines the supplementary amount as being so much of the payment which is included by way of rental assistance and remote area allowance.

However the Sugar Industry Assistance Package income support payment is not made under the FHSA but rather it is made under ministerial grants using guidelines akin to the exceptional circumstances relief payments or farm help income support payments under the FHSA. Therefore the supplementary amount will not be exempted and remains assessable income.

Question 3.2:

Will the income support payment under the Sugar Industry Assistance package be included in the instalment income of the recipient?

Answer:

As noted above, the income support payment under the Sugar Industry package represents ordinary income of the recipient. This payment would therefore be included in the instalment income of the recipient.

Question 3.3:

Will the beneficiary rebate apply to the income support payments?

Answer:

The beneficiary rebate will not apply to the payments.

Explanation:

The payment is not included in the definition of rebatable benefits as per sub-section 160AAA(1) Income Tax Assessment Act 1936 (ITAA36). Therefore a beneficiary rebate is not allowable on the payment (subsection 160AAA(3)).

Question 3.4:

Is the payment to be treated as income from primary production in applying the provisions of Division 392 ITAA 1997 - Long-term averaging of primary producers' tax liability?

Answer:

The payment would not be treated as income from primary production.

Explanation:

4. Vouchers to access financial counselling services -

Description of payment

All eligible cane growers accessing the Sugar Industry Package, who do not have ready access to financial counselling services will be eligible to receive a $1,000 voucher to assist in accessing these services.

Question 4.1:

Will the provision of the voucher be considered assessable income to the recipient?

Answer:

Where the counselling services are directly related to the cane farming business, the provision of the voucher would represent assessable income to the recipient. However, where the financial counselling relates to the personal financial circumstances of the recipient, it would not be considered assessable income to the recipient.

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