Taxation Ruling
IT 2120
Income tax: decentralisation incentives - interest free loans
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FOI status:
May be releasedFOI number: I 1122335PREAMBLE
This office has been asked to consider whether Part IVA of the Income Tax Assessment Act 1936 would have application where a taxpayer accepts an interest free loan from a government authority in substitution for assessable decentralisation incentive payments.
FACTS
2. Under the Decentralised Industry Incentive Payments Act 1972 (Vic) employers carrying on a manufacturing or processing industry at a decentralised or special establishment may apply for a payroll tax rebate or a land tax rebate. Other states have similar decentralisation schemes and cover a range of incentives in addition to payroll tax and land tax rebates e.g., freight and fuel subsidies and employment incentive grants.
3. For the 1982/83 income year the Victorian Government negotiated a number of interest free loans with employers qualifying for rebates under the Decentralised Industry Incentive Payments Act 1972. The loans, made under the Economic Development Act 1981 (Vic), were in substitution for the rebates payable for that year and generally represented 75% of the rebates otherwise payable.
RULING
4. Amounts received by way of payroll and land tax rebates, rail freight subsidies, employment incentive grants, fuel subsidies, etc. ordinarily represent part of the proceeds of carrying on a business and are, therefore, assessable income. Quite apart from that, however, paragraph 26(g) of the Income Tax Assessment Act 1936 includes as assessable income bounties and subsidies received in connection with the carrying on of a business.
5. Loans made under the Economic Development Act 1981 (Vic), although interest free, are not assessable income of the borrowers. The loans are repayable capital amounts and are not a reimbursement of deductible expenditure.
6. Acceptance of interest free loans made under the Economic Development Act and similar government schemes does not create a situation to which Part IVA of the Assessment Act would have application.
COMMISSIONER OF TAXATION
10 December 1984
References
ATO references:
NO 83/4977
BO SYD - AF 4154 Pt 6
AF 4182
Date of effect:
Immediate
Date original memo issued:
27 March 1984
Subject References:
ASSESSABLE INCOME: DECENTRALISATION INCENTIVES AND INTEREST FREE LOANS
PART IVA: INTEREST FREE LOANS