Private ruling: Grant
Published: September 2014
Ruling period: Year ending 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Is the grant assessable as ordinary income? | A1: Yes.


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1997 Section 6-15 | Income Tax Assessment Act 1936 Section 15-10

Reasons for decision: Summary: Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year. Ordinary income has generally been held to include three categories, namely, income from rendering personal services, income from property and income from carrying on a business. Grants received by a business in relation to the carrying on of that business are generally assessable income either according to ordinary concepts under section 6-5 of the ITAA 1997 or as a bounty or subsidy under section 15-10 of the ITAA 1997. Where an amount is received by way of indemnity or other recoupment and not otherwise assessable income, the amount may an assessable recoupment under subdivision 20-A of the ITAA 1997. The Commissioner's view on the assessability of government payments to industry are set out in Taxation Ruling TR 2006/3 Income tax: government payments to industry to assist entities (including individuals) to continue, commence or cease business . As outlined in paragraph 12 of TR 2006/3, a government payment to industry to assist with business operating costs or liabilities is ordinary income in the hands of the recipient and is assessable under section 6-5 of the ITAA 1997. A government payment to industry to provide income support because of a reduction in business income is also ordinary income and assessable under section 6-5 of the ITAA 1997 as outlined in paragraph 11 of TR 2006/3. In your case, you received a government grant to assist your business with operating costs or liabilities arising as a result of the floods. The grant was specifically paid to businesses for costs arising as a result of the floods. As your grant was received in relation to the carrying on of your business and to assist with the business costs, it is regarded as ordinary income and assessable under section 6-5 of the ITAA 1997. Please note, that if the payment was not assessable under section 6-5 of the ITAA 1997 as ordinary income it would be assessable as a bounty or subsidy under section 15-10 of the ITAA 1997. This section states that where a bounty or subsidy that you receive is not assessable as ordinary income under section 6-5, it will be assessable under section 15-10 of the ITAA 1997 if it is received in relation to carrying on a business. Subsection 6-15(2) of the ITAA 1997 provides that if an amount is exempt income, it is not assessable income. The grant is not made exempt from income tax by any provision in the legislation

Relevant facts: The arrangement that is the subject of the Ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are: | n the application for private ruling, and | n additional information including the terms and conditions for the grant. | Storms and floods impacted the business. | You received a grant to assist with business expenses. | The grant is not intended to replace the need for insurance and is not intended to provide compensation for losses. | Any grant that is provided that is subsequently covered by an insurance claim should be repaid immediately. | In order to receive the grant, you must be in business and must produce tax invoices for the relevant expenses when you apply for the grant in order to qualify for the payment.