Legislation passed to make COVID-19 support payments for businesses tax-free

Small businesses will not be required to pay tax on COVID-19 business support payments provided by the federal government, after both houses of parliament passed new legislation this week.

The Treasury Laws Amendment (COVID-19 Economic Response No.2) Bill 2021 was passed by the Senate on Monday, after an attempt to add a JobKeeper transparency measure to the legislation was defeated. 

The legislation classifies COVID-19 support payments to both businesses and individuals as non-assessable non-exempt income for tax purposes, and follows similar legislation introduced by the federal government in late 2020 for payments made during the previous financial year. 

To be covered by the new law, business support programs will need to be declared eligible by Treasurer Josh Frydenberg, and payments must be received by businesses in the 2021-22 financial year. 

The tax concessions are also only available to businesses that have aggregated turnover of $50 million or less, despite some state-based programs, such as the JobSaver program in New South Wales, having an expanded turnover threshold of up to $250 million. 

COVID-19 Disaster Payments to individuals will also be considered non-assessable, non-exempt income under the new laws, unlike the wage subsidies provided through the JobKeeper scheme, which were taxed. 

The legislation also allows for the Australian Taxation Office to share data with states and territories administering the support programs, and extends Frydenberg’s powers to issue additional support payments for businesses that are affected by state-based COVID-19 lockdowns, for the period between July 1, 2021 and December 31, 2022. 

The Treasurer was granted such powers during the pandemic last year, which allowed the federal government to introduce the JobKeeper wage subsidies and JobMaker hiring credits.