The COVID-19 support payments received by individuals and businesses are set to be regarded as non-assessable non-exempt income after the introduction of a new legislation into Parliament.

The Treasury Laws Amendment (COVID-19 Economic Response No. 2) Bill 2021 was declared in Parliament, reinforcing Prime Minister Scott Morrison’s statement that COVID-19 disaster payments will now be tax-free.

Under the amendment, COVID-19 disaster payments that date back to 3rd June 2021 shall now be non-assessable non-exempt income, which means that recipients will be taking home more than they previously did under the $90 billion JobKeeper wage subsidy program, which was taxed.

Staff who have lost 20+ hours of work per week will be receiving $750 a week, at the same time, employees who lose between eight and 20 hours shall receive $450.

Prior to the Prime Minister’s comments last Thursday, the official guidance from the Treasury, Tax Office and Services Australia all stated that COVID-19 disaster payments were taxable income.

It is still presently unclear how Victorian workers who received the disaster payments in June and have since gone on to lodge their tax returns will be handled by the Tax Office.

The ATO revised its guidance to reflect the expected law change, with additional guidance likely to come once legislation passes both houses.

We are hoping for a smooth administration of the law change and for the ATO to potentially auto-correct 2021 individual tax returns already lodged which treated the COVID-19 disaster payment as assessable. This would in no doubt be welcomed by the recipients of COVID disaster payments and state business support. At the same time, it would add another tax expenditure eroding the federal government’s budget bottom line.

Roughly $500 million in these disaster payments have already been paid to approximately 1 million workers in New South Wales and Victoria.

Tax-free business support payments

This new law will also guarantee that COVID-19 business support payments will be deemed 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 obtained in the 2021–22 financial year.

NSW’s business support grant, micro-business support grant, and the JobSaver program are anticipated to be eligible in the wake of a joint statement by Mr Morrison and Mr Frydenberg on 13 July.

Most importantly, entities are required to have an accumulated revenue of less than $50 million to qualify for the concessional tax treatment, placing it at odds with NSW’s JobSaver program which had recently expanded to businesses with an annual turnover of up to $250 million.

Accountants are now facing the challenge of distinguishing expenditure rendered non-deductible to the extent it relates to the production of non-assessable, non-exempt income.

The new bill will also enable data from the ATO to be shared by the relevant states and territories administering COVID-19 business support programs.

The information will be used to determine eligibility for support payments and will also be used to help facilitate compliance activities. It is expected that BAS and Single Touch Payroll information may now be shared readily between the ATO and relevant government agencies.

If you have any queries regarding any of the above information, please contact our office.