The tax implications of natural disasters

With the recent major bush-fires in New South Wales, the Tax Office implemented a freeze on the requirement for affected taxpayers to meet their tax obligations. Support measures included a blanket deferral of  lodgement deadlines for tax returns and activity statements. In past natural disaster responses, the Tax Office also stopped the general interest charge on delayed tax obligations.

Other possible measures the Tax Office has been able to offer after recent natural disasters, where emergency assistance is supplied by workplaces for their staff (such as support with accommodation or transport), is help in accessing certain fringe benefits tax (FBT) concessions that enable employers to provide short-term assistance to their employees without FBT implications.

Also, after the Victorian “Black Saturday” bush-fires in 2009, for example, a blanket deferral was placed on tax debt recovery action for taxpayers in areas that were affected. The measures were subsequently lifted, but the Tax Office says that such actions will be considered again if and when such needs arise.

Are emergency payments taxed?

Generally, one-off assistance and emergency payments from charities are not taxed. Usual Centrelink payments are taxable, but there are some emergency payments from Centrelink that may not be, however it will pay to check if you’re not sure, or ask this office for assistance.

Bush-fires, floods, storms – natural disasters come in many forms. Even strong winds and heavy rain are very capable of wreaking a lot of damage, and with these destructive events can come loss of income, either from damage to your workplace or business vehicle, let alone your tools of trade and essentials such as computers. And imagine the devastation that losing your house would cause.

If an employer offers one-off emergency assistance payments, these may not necessarily be counted as taxable income, and help by way of cash gifts from family and friends in most cases escape tax. Having said this, salary or wages paid in advance will likely be taxed, as these are considered part of ordinary income.

If you know you will experience difficulty meeting a tax bill due to the effects of a natural disaster, you can ask the Tax Office for more time by calling 13 11 42 (or have us call on your behalf). This includes amounts owing as a result of your business activity statement (BAS).

Lost paperwork

If through natural disaster you lose necessary tax records, the Tax Office can help. After establishing proof of identity, it can re-issue documents such as income tax returns, activity statements and notices of assessment. Employers should keep copies of PAYG statements, but if you’re your own boss, the Tax Office should be able to help here too.

If the documents that you would normally keep to back up tax claims have gone up in smoke, the Tax Office says it can accept that you have made a claim “without substantiation” if it is within reason. Also a tax officer can help reconstruct your records and fill in a “reasonable estimate for documents destroyed by disaster” form that will help put your tax affairs back on track (ask this office if you need a copy of this form).

And if you have lost all records of your tax file number, it is still possible to get whatever information you will need. The Tax Office will allow people affected by natural disaster to use other information such as date of birth, address or bank account details to verify tax information.

Third party issues

If for example your bank imposes fees for replacing bank records or providing any other service with regard to reconstructing your financial affairs, those fees will be tax deductible in the year they are charged. And if your affairs are usually handled by our office but it is our very own premises that were flooded or burnt, the Tax Office generally allows all parties more time to get documentation and related matters sorted out.

Insurance, deductions, and CGT

Any insurance pay-out you receive for a destroyed or damaged main residence, personal car, or work-related item like a computer or tools is not taxable. This does not have to be included as income in your tax return, although there may be a “balancing adjustment” for certain assets.

There are specific allowances and processes that the Tax Office has developed to deal with depreciating assets that are affected or destroyed due to natural disasters, and adjustments you can make. See this office for help and for more details.

For businesses, insurance payments for the destruction of stock operates under the general rule that if the insurance premium for that cover was claimed as a tax deduction, payments received for a claim on that policy will be treated as asses-sable income. You can claim a tax deduction for the cost of repairing items used for work where the cost of those items is allowed as a legitimate deduction anyway.

If you own a rental property, repairs made to a damaged building will be tax deductible, as long as the cost is for a genuine repair and is not, for example, the replacement of an entire structure. Insurance pay-outs in relation to capital gains tax (CGT)  assets may have a tax consequence, which we can help you sort out. Of course pay-outs on personal property such as household goods would not usually have to be taken into account for CGT purposes in the case of a house that is only ever used as your principal residence.

Fast help

See the government’s disasterassist.gov.au website for current disaster assistance and other valuable information. Also ask this office how the Tax Office can help you with lost records, lodging forms, payments, a faster tax refund and more.

DISCLAIMER:All information provided in this publication is of a general nature only and is not personal financial or investment advice. It does not take into account your particular objectives and circumstances. No person should act on the basis of this information without first obtaining and following the advice of a suitably qualified professional advisor. To the fullest extent permitted by law, no person involved in producing, distributing or providing the information in this publication (including Taxpayers Australia Incorporated, each of its directors, councilors, employees and contractors and the editors or authors of the information) will be liable in any way for any loss or damage suffered by any person through the use of or access to this information. The Copyright is owned exclusively by Taxpayers Australia Inc (ABN 96 075 950 284).