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COVID-19 support payments received by individuals and businesses are set to be treated as non-assessable non-exempt income following the introduction of new legislation into Parliament.
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COVID-19 payments to individuals, businesses to be tax-free under law change
03 August 2021
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On Tuesday, the Treasury Laws Amendment (COVID-19 Economic Response No. 2) Bill 2021 was introduced into Parliament, confirming Prime Minister Scott Morrison’s comments that COVID-19 disaster payments would now be tax-free.
Under the change, COVID-19 disaster payments dating back to its introduction on 3 June will now be non-assessable non-exempt income, meaning recipients will take home more than they did under the $90 billion JobKeeper wage subsidy program, which was taxed.
Workers who lose 20 or more hours of work a week will receive $750 a week, while those who lose between eight and 20 hours will receive $450.
Up until the Prime Minister’s comments last Thursday, official guidance from the Treasury, the Tax Office and Services Australia all stated that COVID-19 disaster payments were taxable income.
It remains unclear how Victorian workers who received the disaster payments in June and have gone on to lodge their 2019–20 tax returns will be treated by the ATO.
The Tax Office updated its guidance on Tuesday to reflect the potential law change, with further guidance to come once legislation passes both houses.
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Michael Croker, tax leader at Chartered Accountants Australia and New Zealand, said he was hoping for a smooth administration of the law change.
“Hopefully the ATO will auto-correct 2021 individual tax returns already lodged which treated the COVID-19 disaster payment as assessable,” said Mr Croker.
“NANE treatment will no doubt be welcomed by recipients of COVID disaster payments and state business support, but adds another, unquantifiable ‘tax expenditure’ eroding the federal government’s budget bottom line.”
Around $500 million in disaster payments has been paid to nearly 1 million workers in New South Wales and Victoria.
Tax-free business support payments
The new legislation will also ensure that COVID-19 business support payments will be treated as non-assessable non-exempt income.
Business support payments will also only be tax-free if they are made under a program declared eligible by Treasurer Josh Frydenberg and were received in the 2021–22 financial year.
NSW’s business support grant, micro-business support grant, and its JobSaver program are expected to be eligible following a joint announcement by Mr Morrison and Mr Frydenberg on 13 July.
Crucially, entities must have an aggregated turnover of less than $50 million to be eligible for the concessional tax treatment, putting it at odds with NSW’s JobSaver program which was recently expanded to businesses with an annual turnover of up to $250 million.
“Life doesn’t get easier for accountants, who now face the challenge of identifying expenditure rendered non-deductible to the extent it relates to the production of NANE (although losses are not eroded by NANE),” said Mr Croker.
“CA ANZ expects consultations to occur with the ATO on this issue.”
The new bill will also allow data from the ATO to be shared with the relevant states and territories administering COVID-19 business support programs.
The information will be used to establish eligibility for support payments and will also be used to facilitate compliance activities. Mr Croker expects BAS and Single Touch Payroll information to now be shared readily between the ATO and relevant government agencies.
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