James operates the delivery and courier business in Blue Mountains. In FY2017, a bushfire
caused major damage in and around the region and his business was closed for six months.
James had an insurance for any loss of profit of the business due to natural disasters.
He had been paying the insurance premiums and claiming the payments as deductions for
each year. In light of the disaster, James received $160,000 payout in FY2018 for the
loss of income relating to the forced closure.
He also received a once-off $50,000 donation from a public fund in FY2018. Most of the
donations are raised from NSW and federal government to assist the victims of the
Is James required to declare any of these amounts as assessable income in his tax return.
For the purposes of taxation, common law establishes that a compensation receipt takes
the character of the item that it replaces. Insurance payments and other compensation
received for loss of profits or income due to an interruption to business caused by fire are
assessable income. As the insurance payout is compensating for the loss of profit, the
$160,000 payout should be included in James’ FY2018 income tax return.
The receipts of fund or other property as a simple gift or donation is not a receipt of
income. According to TD 2006/22 para 3, it specifically states:
A bushfire causes major damage in and around a rural centre. A public fund is established
by a charity to accept donations from people wishing to provide assistance to victims of
the bushfire. The fund receives donations from the public as well as a large contribution
from the Federal Government. The charity makes one off payments of $1,000 to those
affected by the bushfire. The payments are unconditional and represent a gift to help
people in difficult financial circumstances. Both individuals and taxpayers who carry on a
business receive a gift of money from the fund. Payments from the fund received by the
recipients are not assessable under section 6-5 or 15-10 of the ITAA 1997.’
Thus, the $50,000 donation from a public fund is not included in James’ income tax return.