In our last article, we discussed the industry reforms at a high level, and considered the practical impact of the reforms on the taxi industry as a whole - including compensation for license holders, assignment agreements, and the workability of the $2 passenger levy.
In this article, we delve deeper into the day to day legal and financial consequences for industry participants who receive compensation from the Victorian Government in the form of a payment from the hardship fund, an assistance payment, or a rebate – specifically, how the assistance will be dealt with by the ATO and Centrelink.
Unfortunately, as at the time of printing, there is no draft legislation concerning taxi industry reform before the parliament. This article, therefore, attempts to address the implications of the industry assistance package, on the basis of the press releases issued by the government, only. Of course, the Victorian Government may change at the next election, which means that policies announced by this government may not be implemented in the long term.
Industry Assistance Package – Compensation for License Holders
There are three types of compensation that have been announced by the Government:
- payments from the “hardship fund”;
- assistance payments to license holders; and
Applications by industry participants for assistance from the hardship fund will be assessed by the administrator of that fund on a case by case basis.
An applicant will be required to show to that administrator of the fund evidence of their hardship. For example, overdue notices, mortgage default notices and the like.
At present, criteria for a successful application is unavailable to the public, making it difficult to consider the tax and social security implications of such payments as these criteria will inform the purpose and taxability of the payment.
Parallels may be drawn to compensation and assistance payments made to victims of natural disasters who may be eligible for the Commonwealth Government’s “Disaster Recovery Payments”, which are generally non taxable. Conversely, businesses which suffered hardship as a result of the suspension of live cattle exports who received government income supplements, were liable to pay tax on those payments.
It is likely that an application to the Australian Taxation Office and Centrelink, for a determination on the tax liability incurred, and effect on social security payments will need to be made, to ensure clarity and certainty, industry-wide.
The assistance payments are akin to compensation for the loss in value of the taxi license, which was previously a valuable asset. In brief, the assistance payments:
- are available to those who purchased perpetual or fixed term taxi licenses, and owned them on 15 August 2016;
- will be paid for a maximum of two licenses;
- vary according to the length of time and zoning of the license; and
- are payable to recipients over 8 installments.
For example, a perpetual metropolitan license will attract an assistance payment of $100,000. If an entity holds two perpetual metropolitan licenses, they will receive $100,000 for the first license and $50,000 for the second. Any further licenses will not attract an assistance payment.
Whether an assistance payment is income, an asset, is made “ex gratia” or otherwise, will turn on the purpose of the payment, and the specific wording of the section of legislation establishing the payment. It is possible that assistance payments may be determined to be income, however, considering:
- the assistance payments being made to the license owner over 8 regular installments;
- industry assistance payments (as opposed to emergency disaster relief payments), such as those granted to primary producers as a result of the suspension in live cattle exports, were determined to be income, and taxable accordingly.
Once it is determined whether the assistance payment is taxable or not, it is necessary to consider whether the assistance payment will be determined to be income (therefore attracting income tax), or an asset capable of a capital gain (or loss). Again, consideration of the precise wording of any proposed legislation, and potentially an application to the ATO for determination on this issue, may be necessary for clarity.
Finally, and amid much confusion, in early September 2016 the government announced that rebates would be paid to annual license holders. Whilst the amount of such a rebate is yet to be published, it must be noted that the rebate:
- is to be made to those who’ve already purchased their annual license, and to those who purchase an annual license in the period until the transition to a single market is complete (likely 2018);
- will likely be a single payment, in the form of a refund of a part of the license fee;
- is to compensate for the cost of the annual license, and not for the application fee for the license.
Again, the wording of any proposed legislation, and the purpose of the rebate as propounded by the government will be essential to determining the taxation implications for a recipient of a rebate.
Many taxi license owners will have relied on the value of their license as a nest egg for their retirement. Consequently, those owners may too be considering applying for the aged pension, or may already receive a full or part-pension from Centrelink.
It is important to note that receipt of an industry assistance payment, hardship payment or rebate will only have an adverse affect Centrelink payments if either the taxi license is held in your personal name, or you stand to receive a greater dividend or payment from a company, business or other body corporate, as a result of that entity receiving the industry assistance payment.
Eligibility for the aged pension is determined by the following criteria:
- the applicant must be 65 years (although the age is increasing to 67 years by 2 July 2023);
- an Australian resident (for at least ten years, with some exceptions)
- an income test; and
- an assets test, which presently includes property which is not a principle place of residence, the market value of taxi licenses, shares, business assets, life interests, superannuation entitlements and the like.
The effect of an industry assistance payment on the aged pension will depend upon the ultimate determination by Centrelink as to whether the payment is an asset, or income. If the payment is determined to be income, then the aged pension will be reduced for the Centrelink reporting period in which the payment is received.
If the payment is determined to be an asset, then the aged pension benefits may be reduced, or suspended, for a period of time called a “preclusion period”, which will vary according to the amount of the payment received.
As always, it is imperative that recipients of the aged pension continue with their fortnightly reporting of their income and assets to Centrelink, in order to avoid any surprise overpayments, and subsequent repayments, required to be made to Centrelink.
Naturally, this article cannot, and does not attempt to address all of the many scenarios that may arise by virtue of the industry assistance payments and their impact on individual taxation and social security payments. We strongly recommend that all recipients of an industry assistance payment obtain legal and financial advice.
The efforts that the Victorian Government has gone to ensure that the taxi industry is supported during this difficult period of transition, are great. However, there are many questions that the recent announcements have raised, and most of these questions cannot yet be answered. Until draft legislation is introduced into parliament, the real and practical effect of the industry assistance payments cannot be determined.