Private ruling: Special disaster grant
Date of advice: 19 May 2026
Published: 27 July 2026
Ruling period: Year ended 30 June 20XX | Year ended 30 June 20XX | Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Do the Special Disaster Grant state A Flooding and the state A Severe Weather and Flooding Grant, from the state A X Authority, constitute assessable income, under s 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No. | Q2: Do the Special Disaster Grant state A Flooding and the State A Severe Weather and Flooding Grant, from the state A X Authority, constitute assessable recoupments under Subdivision 20-A of the ITAA 1997? | A2: Yes. | Q3: Do the Special Disaster Grant state A Flooding and the state A Severe Weather and Flooding Grant, from the state A X Authority, qualify as non-assessable non-exempt income under Division 59 of the ITAA 1997? | A3: No.

Relevant facts and circumstances: You operate a primary production business located in a specific region. During the income year ending 30 June 20XX, you received the following state A X Authority grants, of a specific amount: • state A Severe Weather and Flooding Grant, relating to a specific timeframe. During the income year 30 June 20XX and 30 June 20XX, you received the following state A X Authority grants: • State A Severe Weather and Flooding Grant of a specific amount, relating to X 20XX and X 20XX. • Special Disaster Grant Flooding of a specific amount, relating to X 20XX and January 20XX. You did not receive any other grants aside from the abovementioned. The grants were paid to assist with recovery from severe weather and flooding impacts including fencing repairs, restoring farm infrastructure, replacing livestock, purchasing fodder, repairing machinery, covering cleanup costs, etc. You used the grants were used for the above purposes. You understand you did not receive the grants as compensation for loss of income. You treated the grants as assessable income pending this ruling. You claimed deductions for any expenses reimbursed by the grants unless required under the law.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 6-5 | Income Tax Assessment Act 1997 Subdivision 20-A | Income Tax Assessment Act 1997 Division 59 Further issues for you to consider | This ruling is limited to the question raised in the request for advice. We have not considered any other conditions relevant to the circumstances. For more information on reporting natural disaster payments and grants in your tax return, search for quick code (QC) 67560 at ato.gov.au

Reasons for decision: Summary: Having regard to your circumstances and the type of grants received for the abovementioned periods, the state A X Authority grants you received are Category X grants. These grants were provided to support recovery from severe weather and flooding impacts, including expenses such as fencing repairs, restoration of farm infrastructure, replacement of livestock, purchase of fodder, machinery repairs, and cleanup costs, rather than to compensate for loss of income. Accordingly, the grants are categorised as assessable income , specifically as assessable recoupments under Subdivision 20-A, as they reimburse deductible losses or outgoings. You are therefore required to report these payments in your respective income year tax returns ( ITAA 1997 s 20-20). | Detailed Reasoning - Detailed Reasoning: Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) establishes that assessable income includes 'ordinary income', being income according to ordinary concepts such as earnings from employment or business activities. Ordinary income takes its meaning from case law and generally includes income that is earned, expected, relied upon, and has the character of income in the hands of the recipient. Government disaster grants paid to businesses following a natural disaster are not earned from business activities, nor do they arise from the regular income producing processes of the business. The ATO has consistently stated that disaster relief payments are capital or compensatory in nature, intended to assist recovery rather than to reward services or activities. Such payments lack periodicity and are not payments for services rendered. Accordingly, they do not constitute ordinary income under section 6-5. These grants are made as a response to natural disasters, are not earned through ordinary business operations, and are not recurring or relied upon in the course of regular income earning activities. They therefore lack the character of ordinary income. As confirmed by the ATO, disaster support grants to businesses are assessable unless Parliament has declared them non-taxable. Where the grants fund deductible expenditure, such as repairs, asset replacement, or fit-out costs, they may constitute assessable recoupments under Subdivision 20-A of the ITAA 1997. Section 20-20 of the ITAA 1997 provides that a recoupment (i.e. reimbursement or recovery of a loss or outgoing) is not assessable if it is already taxed as ordinary income or statutory income under another provision. A recoupment is assessable where it is received by way of insurance or indemnity and the taxpayer has claimed, or can claim, a deduction for the related loss or expense. Additionally, other forms of recoupment (not involving insurance or indemnity) are assessable if they relate to a deductible loss or outgoing under specified provisions. Overall, the section ensures that taxpayers are taxed on recoveries of previously deducted amounts to prevent double tax benefits. In Denmark Community Windfarm Ltd v FC of T [2018] FCAFC 67 ( Denmark ), the concept of a recoupment was considered in the context of government payments received to support a business activity. The case illustrates that a recoupment involves a reimbursement or recovery of a loss or outgoing, and its tax treatment depends on the connection between the payment and deductible expenses. The court emphasised that where a payment is intended to compensate for or offset specific costs incurred in carrying on a business, it may constitute a recoupment and be assessable, particularly if those costs are deductible. This aligns with Subdivision 20-A, which ensures that amounts received to cover deductible expenditure are brought to account as income to prevent a double benefit. However, the case also highlights that not all government grants are automatically recoupments. The character of the payment must be determined by its purpose, and whether it is sufficiently linked to a loss or outgoing rather than being capital or structural in nature. Accordingly, Denmark reinforces that a payment will be treated as a recoupment where it effectively replaces or reimburses deductible expenditure, supporting the operation of section 20-20 in including such amounts in assessable income. Division 59 of the ITAA 1997 operates to classify certain government payments, including disaster relief grants, as non-assessable non-exempt (NANE) income, meaning they are excluded from assessable income and are not taxed. However, this treatment only applies where a payment has been specifically declared as NANE through legislative instruments under the Division. ATO guidance confirms that only particular disaster grants such as Cyclone X Category X grants and specified 20XX storms and floods Category X grants, have been prescribed as NANE, while similar grants for events occurring after XX XXX 20XX are generally assessable unless expressly covered by such instruments. In this context, state A X Authority disaster grants will only be treated as NANE under Division 59 if they are explicitly listed, otherwise, they remain assessable, potentially as ordinary income under section 6-5 or as assessable recoupments depending on their nature. Accordingly, Division 59 provides a limited exception to normal tax treatment, requiring specific legislative inclusion for concessional (NANE) treatment. Assessable vs non-taxable • Assessable grants must be reported as income in the year received. • Non-taxable grants are not included in the tax return and are not taxed. Any government disaster support grant or payment not listed below, must be treated as assessable income and reported in the tax return for the year it is received. Specified Non-Assessable Non-Exempt (NANE), grants (subject to eligibility criteria): • Cyclone X (XXX 20XX): Category X recovery grants are NANE for the 20XX-XX and later income years. • Storms and floods (X to X): Category X grants are NANE for the 20YY-YY and later income years. Grants not specifically listed as NANE are taxable and must be included in assessable income. Category X or X grants for storms and flooding after X X 20YY are assessable income. The Category X grant operates under the Disaster Recovery Funding Arrangements (DRFA), a cost-sharing framework between the Commonwealth and State governments. It provides targeted recovery assistance to communities, regions, and sectors severely affected by an eligible disaster, with the aim of supporting recovery rather than stimulating the economy. State governments administer the grants, and any changes to funding amounts or eligibility criteria require prior agreement from the relevant Minister. Category X grants operate under Australia's DRFA and are designed to provide exceptional, targeted recovery assistance when standard disaster relief measures (Categories X, X, and X) are insufficient to address the severity or scale of impacts. | Detailed Reasoning - Purpose and Eligibility: Category X assistance provides urgent, targeted support to help severely disaster-affected communities, primary producers, and small businesses recover and stabilise. It is designed as short-term emergency relief rather than full compensation or restoration to pre-disaster conditions, offering a temporary lifeline to enable recovery. Eligible recipients may include: • Primary producers such as farmers and agricultural businesses. • Small businesses in disaster affected areas. • Communities and sectors facing exceptional recovery needs. Grants address specific recovery gaps such as loss of livestock, damaged infrastructure, urgent operational needs and are typically capped, with limits determined by the state or territory in consultation with the Commonwealth. For example, following the XXX 20XX state A floods, eligible farmers could receive up to $XX, , administered by the state A X Authority. | Detailed Reasoning - Administration and Delivery: • Category X assistance is administered by state or territory agencies such as the X Authority for State A. • Eligible recipients apply through the relevant state authority once a disaster has been formally declared and Category X measures approved. • Funds are released after coordination between state and Commonwealth governments, with advance payments available in cases of extreme urgency. | Detailed Reasoning - Key Characteristics: • They provide exceptional circumstances assistance, beyond standard disaster relief. • They are jointly funded by the Commonwealth and state/territory governments. • Requires assessment of disaster impacts and the identification of recovery gaps. • Could be provided as reimbursement or advance payment. • Supports rapid recovery for primary producers, small businesses and communities. (e.g., the state A X Authority), with advance payments available where immediate support is required). Government natural disaster support grants paid to businesses are generally assessable income and must be included in the tax return in the year received, unless Parliament declares them non-taxable. | Detailed Reasoning - Application to your circumstances: You are carrying on a business of primary production and encountered severe weather and flooding impacts on your business, during X 20XX and X 20XX. You received a state A Severe Weather and Flooding Grant and a Special Disaster Grant - state A Flooding, from state A X Authority. Category X or X grants for storms and flooding after X X 20YY, are assessable income. The ATO guidance specifically notes that Category X or X grants relating to storms and flooding, after XX XXX 20XX are assessable and must be included in the tax return for the year of receipt. Your grants are classified as category X grants, in relation to storms and flooding after XX XXX 20XX, and this will need to be reported as assessable income in the relevant tax returns Ordinary income under s 6.5 includes receipts that arise from employment, business activities, or income-generating undertakings, and is characterised by elements such as regularity, periodicity, and a connection to services or profit-making activities. In the context of State A X Authority grants, whether a grant constitutes ordinary income depends on its purpose and connection to the recipient's income-producing activities. Division 59 ITAA 1997 and related legislative instruments operate to declare certain disaster relief payments as Non-Assessable Non-Exempt (NANE). However, based on the ATO guidance only specific grants have been declared NANE, including: • Cyclone X Category X grants (XX XXX 20XX) - NANE from 20XX-XX onward • 20XX storms and floods Category X grants (XX XXX-XX XXX 20XX) - NANE from 20XX-XX onward. The ATO explicitly states that Category X or X grants for storms and flooding occurring after XX XXX 20XX are assessable. Unless the state A X Authority Special Disaster Grants or State A Severe Weather and Flooding Grants are covered by a specific legislative instrument declaring them NANE, they do not qualify as non-assessable non-exempt income under Division 59. | Detailed Reasoning - Conclusion: Based on the application of Subdivision 20-A of the ITAA 1997, the relevant case law, and the ATO's published guidance, the state A X Authority Category A grant received for flooding events occurring after XX XX 20XX is assessable income as a recoupment. The grant represents a reimbursement of losses or outgoings incurred in the course of carrying on a business, and to the extent those expenses are deductible, the payment falls within the definition of an assessable recoupment under section 20-20. Consistent with Denmark , where the character of a government payment is determined by its purpose and connection to business expenditure, the state A X Authority grant is properly characterised as offsetting deductible costs rather than being capital or non-assessable in nature). As the grant is not covered by a specific legislative instrument declaring it non-assessable non-exempt income under Division 59, it does not qualify for concessional treatment and must instead be included in assessable income under Subdivision 20-A. Subdivision 20-A, particularly section 20-20, governs when a government payment is treated as an assessable recoupment, ensuring taxpayers are taxed on reimbursements of deductible losses to prevent double benefits. In the context of state A X Authority Category X flooding grants for events occurring after XX XXX 20XX, these grants will generally be treated as recoupments where they compensate a taxpayer for business losses or outgoings that have been or can be, claimed as deductions. Because these grants are typically not provided by way of insurance or indemnity, they fall under the 'other recoupment' category, meaning they are assessable if the underlying expense is deductible under a provision listed in section 20-30. Therefore, if a primary producer uses a Category X grant to cover deductible expenses such as repairs, clean-up costs, or operating losses, the grant is to be included in assessable income as an assessable recoupment. For post-XX XXX 20XX state A X Authority Category X grants, Subdivision 20-A ensures taxation aligns with the principle that reimbursements of deductible expenses are brought to account as income. The state A X Authority grant received after XX XXX 20XX is assessable as a recoupment to the extent it relates to deductible losses or outgoings under Subdivision 20-A.

Reasons for decision: These reasons for decision accompany the Notice of private ruling for a specific entity. | This is to explain how we reached our decision. This is not part of the private ruling. | Question 1: Do the Special Disaster Grant and the state A Severe Weather and Flooding Grant, from the state A X Authority, constitute assessable income, under s 6-5 of the Income Tax Assessment Act 1997 ITAA 1997? | Question 2: Do the Special Disaster Grant Flooding and the state A Severe Weather and Flooding Grant, from the state A X Authority, constitute assessable recoupments under Subdivision 20-A of the ITAA 1997? | Question 3: Do the Special Disaster Grant A Flooding and the state A Severe Weather and Flooding Grant, from the state A X Authority, qualify as non-assessable non-exempt income under Division 59 of the ITAA 1997?