Private ruling: Business - deductions - government grant - assessable recoupment
Published: February 2012
Ruling period: 1 July 2010 to 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Q1: Is the payment received under the Natural Disaster Relief and Recovery Arrangements subject to the recoupment provisions of section 20-20 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No | Q2: Where the payment has been used to pay deductible expenditure, do the normal deduction rules apply? | A2: Yes

Relevant facts and circumstances: You operate a primary production business. Your property was damaged as a result of the 2010-2011 Victorian floods. You received a non-assessable non-exempt payment under the Australian Government Natural Disaster Relief and Recovery Arrangements to primary producers (recovery grant). The Attorney General's Natural Disaster Relief and Recovery Arrangements determination provides for recovery grants for primary producers where the farming sector is severely affected, with threats to viability and disruption of production likely to extend beyond the current season. Grants to primary producers are aimed at covering the cost of cleanup and reinstatement, but not at providing compensation for losses. Invoices for repairs were lodged with your grant application. The grant approval letter provided shows; · the payment was made to assist with the cost of repairs to crossings on your property. The 'balance' of the grant will be considered on the presentation of all remaining eligible invoices. Any grant for work that is subsequently covered by an insurance claim must be repaid. You wish to know if deductible business expenditure is required to be reduced by the amount of the recovery grant for income tax purposes.

Relevant legislative provisions: Income Tax Assessment Act 1997 subdivision 20-A | Income Tax Assessment Act 1997 section 20-20 | Income Tax Assessment Act 1997 section 59-55

Reasons for decision: Summary: Section 59-55 of the ITAA 1997 provides that certain payments made as recovery grants to small businesses and primary producers under the Natural Disaster Relief and Recovery Arrangements are not assessable income and are not exempt income. These payments are aimed at covering the cost of cleanup and reinstatement, but not at providing compensation for losses. This approach ensures that the grant is exempt from tax, while avoiding interactions with other areas of tax law. The effect of section 59-55 of the ITAA 1997 in the given circumstances is that the recoupment provisions contained in Division 20-A of the ITAA 1997 do not apply. The normal provisions concerning deductible expenditure therefore apply.

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