If disaster strikes

Are emergency payments taxed? |  Lost paperwork |  Your representatives, and third party issues |  Insurance, deductions, and CGT

Bushfires, floods, storms – even strong wind and heavy rain can cause a lot of damage. And with it can come loss of income, either from your workplace or business vehicle being damaged – let alone tools of your trade, essentials such as computers, or even protective clothing. And imagine the devastation that losing your house would cause.

With recent flooding and then cyclones in Queensland, and bushfires in Western Australia previously in Victoria, several amendments to the law and administrative concessions were implemented to help victims. Support measures included deferring lodgement dates and stopping the general interest charge.

Where emergency assistance was supplied by workplaces for their staff after the bushfires (such as help with accommodation or transport) the Tax Office highlighted certain fringe benefit tax concessions which enabled employers to provide short-term help to their employees without FBT implications.

At the time of the bushfires, for example, a blanket deferral was also placed on tax debt collection or other such actions for taxpayers in areas that were affected by the disasters. The measures were subsequently lifted, but the Tax Office says that such actions will be considered again should the need 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 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 Tax Office has committed to fast-track any tax refund payments for people affected by natural disasters (you can call 1300 304 975 to ask for this). And if you know you will experience 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 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, the Tax Office will 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.

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 the number above (1300 304 975) or register for help online if you're a business.

And if you and others, such as those from your workplace, 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.

Your representatives, and third party issues
If your affairs are usually handled by an accountant or tax agent, and it is their premises that were flooded or burnt, the Tax Office will give them more time to get things sorted. There is even a special tax agent infoline: 13 72 86.

And if, say, your bank imposes fees for replacing bank records or providing any other service with regard to reconstructing your banking affairs, those fees will be tax deductible in the year they are charged.

Insurance, deductions, and CGT
Any insurance pay-out you receive for a destroyed or damaged house, 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 assets.

The Tax Office has a whole section on its website on how to handle depreciating assets that are affected or destroyed in a bushfire, and adjustments you can make. See here for details.

For businesses, insurance pay-outs for the destruction of stock has the 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. You can claim a tax deduction for the cost of repairing items used for work for which a tax deduction is usually allowed.

Pay-outs on personal property such as household goods would not usually have to be taken into account for capital gains tax purposes, and in the case of a house, if the house was only ever used as your principal residence, capital gains tax (CGT) as any capital gain or loss is disregarded

If you own a rental property, there could be a CGT impact (see more on capital gains tax here). Repairs made to a damaged rental property will be tax deductible, as long as the cost is a genuine repair and is not, for example, the replacement of an entire structure.

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