When natural disasters hit, tax issues follow quickly behind
The cyclone that has been ravaging parts of Queensland are a timely reminder that natural disasters, from storms, bushfires and floods, can have financial consequences for our clients. This can come about from either workplaces, business vehicles tools of trade, essentials such as computers, or even protective clothing being damaged.
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 an employer offers emergency assistance payments, this is not taxable either. But salary or wages paid in advance will be taxed, as it is part of ordinary income. Help by way of gifts from family and friends escape tax as well.
The ATO says it may be able to fast-track any tax refund payments for people affected by natural disasters (you can call 1800 806 218 to ask for this). If you know there will be difficulty meeting a tax bill due to the effects of a natural disaster, you can ask for more time, and also ask for debt interest to be waived, by calling the same number. This includes amounts owing following lodgement of business activity statement (BAS).
Lost paperwork
If through natural disaster you lose necessary tax records, the ATO can help. After establishing proof of identity, the ATO can re-issue documents such as income tax returns, activity statements and notices of assessment. Employers should have copies of PAYG statements, but the ATO can help as well.
If the documents that you would normally keep to back up tax claims have gone up in smoke, the ATO says it can accept that you have made a claim “without substantiation” if it is within reason.
Still, a tax officer can help reconstruct your records and fill in a “reasonable estimate” form that will help put your tax affairs back on track (click here for the form you will need). You can call 1800 806 218 for help on the matter.
And if a tax file number has been lost and can’t be found, it is still possible to get whatever information you will need. The ATO 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.
Fees, and insurance payouts
If, for example, a bank imposes fees for replacing bank records or providing any other service with regard to reconstructing your banking affairs, those fees generally can be tax deductible in the year they are charged.
Any insurance pay-out you receive for a destroyed or damaged house, car, or work-related items like a computer or tools is not taxable. This does not have to be included as income in a tax return, although there may be a balancing adjustment for certain business assets.
For businesses, insurance pay-outs for the destruction of stock follows a general rule that if the insurance premium was claimed as a tax deduction, payments received for a claim on the policy will be treated as assessable income.
For rental properties, if the owner receives an insurance payout for lost rent, this must be included as income in the next tax return. And if an insurance payout is made for repairs, this should also be included as assessable income.
Taxpayers can claim a tax deduction for the cost of repairs to a rental property or business premises as long as the repairs don’t involve substantial reconstruction or substantial repair, or the replacement of an entire structure, such as a fence.
A repair is work that fixes defects, damage or deterioration of the property; for example:
- replacing part of the guttering or windows damaged in a cyclone;
- replacing part of a fence damaged by a bushfire;
- replacing the plaster board in a wall damaged by flood inundation;
- repairing electrical wiring or machinery damaged by a flood.
An improvement:
- provides something new;
- generally extends the income-producing capability or expected life of the property;
- generally changes the character of the item you have improved;
- goes beyond just restoring the efficient functioning of the property.
Fast help
See the government’s Disaster Assist website for current disaster assistance and other valuable information. Also click here to see how the ATO can help clients with lost records, lodging forms, payments, getting a faster tax refund and more.
On the back of past disastrous events, several amendments to ATO administrative concessions were implemented to help victims. Support measures included deferring lodgment dates and stopping the general interest charge.
One such measure that was put into action in the past, and could see the light of day again in the aftermath of Cyclone Debbie, was where emergency assistance was supplied by workplaces for their staff after bushfires (such as help with accommodation or transport). The ATO highlighted certain fringe benefit tax concessions that enabled employers to provide short-term help to their employees without FBT implications.
A blanket deferral was also placed on tax debt collection or other such actions for taxpayers in areas that were affected by disasters. Those measures were subsequently lifted, but the ATO says that such actions will be considered again should the need arise.
If you have been impacted by Cyclone Debbie or any natural disaster and need further advice on what ti do next, don’t hesitate to get in touch and Team PTAM can help.