How should the payments be treated
Scenario:
I operate a cleaning and courier business (Speedy) in the Hunter Valley. In November 2016, a bushfire caused major damage in the region and my business was closed until April 2017.
I had insured his business for any loss of profit that could be due to natural disasters. I claimed the premiums as allowable deductions each year and always paid the correct amount by the due date through Speedy. After providing substantiation, I received $200,000 on 23 June 2017 as a payout on the insurance policy for lost income.
A public fund was established to accept donations from people wishing to help victims of the bushfire. The fund received donations from the public that were tax-deductible and large contributions from the NSW and the federal government. I received one-off payments, $5,000 for myself and$50,000 for Speedy from the charity, in Feb. 2017.
My question is, is it required for my business and myself to declare any of these amounts as assessable income in the 2016/17 tax returns?
Explanation:
- For the insurance payout
Insurance payments or other receipts in respect of lost trading stock by fire or destruction and amounts received for loss due to an interruption to business caused by fire are assessable either as ordinary income (ITTAA97 s 6-5) or statutory income (ITAA97 s 15-30). Hence, your business, Speedy, should include the $200,000 payment in the 2016/17 income year.
- For the payments from the public fund
A receipt of voluntary payment of money or voluntary transfer of property is prima facie not income in the hands of the recipient. Government payments received by a charity that form an unidentifiable part of the overall funds received by a charity for the purpose of providing aid to persons in need do not alter the non-taxable nature of the aid. (Taxation Determination TD 2006/22).
Therefore, neither you as an individual nor your business are required to treat the amounts from the public fund as income. The amounts are considered tax free and therefore need not be declared as assessable income in either of the 2016/17 tax returns.