KI Mayoral Relief & Recovery Fund and the ATO

Are you a recipient of money from the Kangaroo Island Mayoral Relief and Recovery Bushfire Fund?

The Australian Taxation Office (ATO) has confirmed that the funds issued from the Mayoral relief fund are not covered by the exempt income provisions in the recent Treasury Laws Amendment (2019-20 Bushfire Tax Assistance) Act 2020. However, the tax treatment of funds distributed from disaster relief funds is not assessable income when it is provided to people with the purpose of providing emergency relief.

The ATO website provides some information about disaster relief payments.

Tax consequences for recipients disaster assistance

For Individuals

Funds that are distributed and intended to be used for personal emergency relief such as food or clothing, replacing home and contents, or other non-business purposes are not included in assessable income for the recipient.

For Businesses

Funds that are distributed to businesses and are used for business related expenses must be declared as assessable income for the recipient. However, businesses may also be able to claim the associated business expenses as tax deductions. For example, if you spent all the money replacing lost farm machinery (a deductible expense) there will be no net effect on your income tax. The increase in assessable income will be offset by the increase in deductions claimed.

Example

The Walker Family lost their family home and contents, farming equipment and fencing during the KI fires. They were provided with a $45,000 payment from the KI Mayoral Fund. The payment was deposited into the Walker family farm trust account.

$12,000 was used to provide emergency relief for the family. They purchased food and clothing and replaced essential household items

$33,000 was spent to replace farm machinery used in their farming business and repair fences.

The $12,000 does not need to be declared as income for the Walker Family as this related to personal emergency relief.

The $33,000 will need to be included as income in the trust tax return at the end of the financial year, however a $33,000 deduction may be claimed as a business expense.

For more information visit the ATO at https://www.ato.gov.au/individuals/dealing-with-disasters/assistance-payments/