COVID disaster payments to be tax free under new amendment

Confirming the news that Prime Minister Scott Morrison announced last week in an interview with ABC radio, an amendment has been introduced to make COVID-19 disaster payments tax free for individuals and businesses.

The law, titled Treasury Laws Amendment (COVID-19 Economic Response No. 2) Bill 2021, would apply to any individual payments that have been made since 3 June, when the new set of funding measures were first rolled out. 

Business grants that were paid in the 2021-22 financial year will also be tax free.

While the tax-free status of business grants had already been announced by Mr Morrison and Treasurer Josh Frydenberg in a joint statement on 13 July, the extension of the tax-free status to individuals seemed to be a more sudden change.

When the Prime Minister made his announcement last week, the online guidance from the Treasury, the Tax Office and Services Australia all indicated that the payments for individuals would be taxed. Over the weekend, government agencies updated their messaging to confirm the tax-free status prior to the bill’s introduction on Tuesday.

Currently, individuals who have lost 20 hours or more of work each week are eligible for weekly compensation of $750, while workers who have seen a reduction of between eight and 20 hours each week will receive $450.

While the caps on businesses that could apply for COVID disaster support were recently raised from entities with an annual turnover of $50 million to up to $250 million, the tax free threshold will apply only to businesses that record an annual revenue of $50 million or less.

With the change in taxation, individuals will find that they are receiving more from the new round of COVID relief payments than they were under the JobKeeper scheme, which ran until 21 March 2021.