Assessability of temporary living expenses grant

Is a State Government grant, paid to assist an individual with temporary living expenses that arise as a result of a natural disaster, assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

No. A State Government grant, paid to assist an individual with temporary living expenses that arise as a result of a natural disaster, is not assessable income under section 6-5 of the ITAA 1997, as the grant is not in the nature of ordinary income.

The taxpayer is an individual who is directly affected by a natural disaster.

A State Government offers financial assistance to individuals to meet temporary accommodation and living expenses in circumstances where the individual's principal place of residence is uninhabitable as a direct result of a natural disaster.

The taxpayer applies for, and receives, the State Government temporary living expenses grant.

The temporary living expenses grant is payable up to a maximum amount per household, paid in instalments over a maximum period of 6 months.

The taxpayer is not carrying on a business.

Section 6-5 of the ITAA 1997 provides that the assessable income of a resident taxpayer includes income according to ordinary concepts (ordinary income) derived directly or indirectly from all sources.

Ordinary income has generally been held to include three categories; namely, income from rendering personal services, income from property and income from carrying on a business.

Other characteristics of income that have evolved from case law include receipts that: • are earned • are expected • are relied upon, and • have an element of periodicity, recurrence or regularity.

The temporary living expenses grant received by the taxpayer is not earned as a result of personal services performed; nor is it income from property or from carrying on a business.

Although the payment may be said to be expected and relied upon, this expectation and reliance arises from personal hardship suffered as the result of a natural disaster, rather than from a relationship to personal services performed. The financial assistance is not intended to replace or substitute income, nor can it be used to meet the ordinary costs of living.

Whilst the grant is one-off and final in the sense that the grant is payable up to a maximum amount per household per natural disaster, the method of payment may incorporate elements of periodicity. Nonetheless, regularity and periodicity is not in itself decisive in determining whether an amount is income ( Federal Commissioner of Taxation v. Dixon (1952) 86 CLR 540; (1952) 5 AITR 443; (1952) 10 ATD 82). That is, the character of a receipt in the hands of a taxpayer must be determined having regard to the 'totality of the circumstances' ( Federal Commissioner of Taxation v. Anstis (2010) 241 CLR 443; 2010 ATC 20-221; (2010) 76 ATR 735).

Having regard to all of the circumstances, the temporary living expenses grant is not income according to ordinary concepts and is not included in assessable income under section 6-5 of the ITAA 1997.