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What the government tax exemption means for SMEs

In the wake of the recent bushfires, a number of measures have been announced by government to help fire-affected small businesses, their owners and their employees to recover and rebuild – including tax exemptions and grants. 

Crucially, whilst many of the grants and payments on offer would normally be regarded as taxable income (meaning that the government effectively claws back between 27.5% and 30% of the amount handed over in tax!), legislation has just been passed ensuring that all bushfire relief payments arising from the recent events will be free of tax.

The tax exemption will apply to the following payments:

  • Disaster Recovery Payments made by the Australian government (up to $1,000 per person)
  • Disaster Recovery Allowance payments (these payments are normally taxable but are being made tax free in relation to this bushfire event) – these are payable for up to 13 weeks at Newstart or Youth Allowance rates
  • Payments that would otherwise be taxable under the Disaster Recovery Funding Arrangements, such as grants that may be made to small businesses and primary producers
  • Payments made to eligible Rural Fire Service Volunteers for loss of income where they have been called out for extended periods of service

This tax exemption, included in the Treasury Laws Amendment (2019–20 Bushfire Tax Assistance) Bill 2020 passed both houses on 6thFebruary 2020.

Payments from charities like the Red Cross and Salvation Army are also tax free to the recipient.

Amongst the many different state and federal government initiatives for bushfire affected businesses are the following:

Small Business Grants

To build on the disaster recovery grants put in place by state governments, the Federal Government will provide top-up grants to eligible small businesses and non-profit organisations.

Under this scheme, businesses and organisations that have sustained damage as a result of the fires can access up to $50,000 in grant funding tax free.

Concessional loans

Loans of up to $500,000 will be offered for businesses that have suffered significant asset loss or a significant loss of revenue. The loans will be for up to 10 years and used for the purposes of restoring or replacing damaged assets and for working capital.

The loans will be available with a repayment holiday of up to two years, with no interest accruing during this period. The subsequent interest rate would be set at 50 per cent of the ten-year Commonwealth government bond rate (currently around 0.6%).

Read more: Interest-free loans for bushfire businesses

Support line

A Small Business Bushfire Financial Support Line will be set up and 10 additional financial counsellors will be available with the ability to provide advice to around 100 small businesses a day. The Support Line will be staffed by small business specialist financial counsellors who will be able to provide information on the assistance and support available to small businesses in bushfire affected regions.

The Support Line, which will be staffed by trained financial counsellors, will provide information on the assistance and support available to small businesses in bushfire affected regions.

While the specialist Support Line is being established, businesses can visit www.business.gov.au or call 13 28 46.

Tax Relief

In addition to the tax relief on disaster payments, extra tax help has been offered by the Commissioner of Taxation to enable businesses in identified bushfire-impacted postcodes to alleviate cash flow pressures and assist these businesses with their recovery efforts.

In particular, taxpayers in impacted postcodes will now have until 28 May 2020 to lodge and pay business activity statements and income tax returns. Impacted businesses that pay their Pay-As-You-Go Instalments quarterly are also allowed to vary these instalments to zero for the December 2019 quarter and claim a refund for any instalments made in the September 2019 quarter.

Mark Chapman is Director of Tax Communications with H&R Block. He is the author of “Life and Taxes: A Look At Life Through Tax” and has over 25 years of experience as a tax professional in both the UK and Australia, specialising in tax for small business and individuals.

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Mark Chapman

Mark Chapman

Mark Chapman has over 25 years experience as a tax professional in both the UK and Australia, specialising in tax for individuals and SMEs. He is a fellow of the Institute of Chartered Accountants in England and Wales and CPA Australia and a member of the Chartered Institute of Taxation. He holds a Masters of Taxation Law with the University of New South Wales. Since 2015, Mark has been Director of Tax Communications with H&R Block Australia. He writes regularly on tax issues for numerous media outlets and presents on topical tax topics at seminars and other events. He broadcasts frequently on radio and television and writes a regular column for Money Magazine and Yahoo7 Finance. As a tax practitioner in the UK, he occupied a number of senior positions before moving to Australia in 2007 to join the Australian Taxation Office (ATO) as a senior director. He is also the author of Life and Taxes: A Look at Life Through Tax (Wolters Kluwer CCH, 2017) and the second, third and fourth editions of Australian Practical Tax Examples (Wolters Kluwer CCH, 2019, 2020 and 2021).

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