ATO ID 2002/784: Assessability of a Grant under the Dairy Regional Assistance Program
Date of decision: 24 May 2002
Year of income: Year ending 30 June 2002
Business line: Private Groups and High Wealth Individuals

Issue
Is a grant received under the Dairy Regional Assistance Program (DRAP) that will be used for capital expenses associated with establishing a packaging and processing facility included in assessable income under section 15-10 of the Income Tax Assessment Act 1997 ('ITAA 1997')?

Decision
Yes. A grant received under the DRAP that will be used for capital expenses associated with establishing a packaging and processing facility is included in the assessable income of the recipient in the income year that it is received in accordance with section 15-10 of the ITAA 1997.

Facts
The taxpayer operates a dairy farm that produces organically certified milk. This milk is processed and marketed through the established dairy industry structure. The taxpayer wishes to use the DRAP grant to establish a facility to process and package this milk 'on farm'. This will allow the taxpayer to market the milk outside of the established dairy industry structure so as to better promote the product in its intended market. The taxpayer will use the grant for capital expenses associated with establishing the processing and packaging facility, as well as revenue expenses associated with operating the facility. This will create employment within the local community in accordance with the requirements of the DRAP.

Reasons for decision
Summary: The DRAP is a grant or subsidy. In accordance with section 15-10 of the ITAA 1997, a grant or subsidy is included in the assessable income of the recipient if it is received in relation to the carrying on of a business. However, a grant or subsidy is not included in the assessable income of the recipient under section 15-10 of the ITAA 1997 if it is received in relation to the establishment of a business. Whether a person is carrying on the same business or is establishing a new business is considered in Taxation Ruling TR 1999/9. This Ruling states that a business may expand or contract its activities without necessarily ceasing to carry on the same business, and that the organic growth of a business through the adoption of new compatible operations is part of the same business, provided the business retains its identity. As the taxpayer intends to use the DRAP grant to develop an alternative method of marketing an existing product, it is considered that the grant was received in relation to the carrying on of an existing business rather than establishing a new business. Therefore, the amounts received for the capital expenses associated with establishing the facility are included in the assessable income of the taxpayer in the income year it is received under section 15-10 of the ITAA 1997. Note: The amounts received for the revenue expenses associated with operating the facility are included in the assessable income of the taxpayer in the year it is received under section 6-5 of the ITAA 1997.

Legislative references: Income Tax Assessment Act 1997 section 6-5 section 15-10
Related public rulings and determinations: Taxation Ruling TR 1999/9 | Taxation Ruling TR 2006/3
Subject references: Income Grants of financial assistance & funding Statutory compensation scheme Dairy industry