A taxpayer received a Groundwater Structural Adjustment Program (GSAP) payment from the NSW Government as part of its “Achieving Sustainable Groundwater Entitlements” Scheme which was an amount of structural adjustment assistance paid to high level users of water that was directly linked to the reductions in their access to water. On a change of legislation, the taxpayer’s water licence was cancelled and a water access licence issued under the new legislation. As a result the taxpayer received a GSAP payment. The taxpayer included one-half of the amount as an “assessable government industry payment”.

The Commissioner determined that the whole amount ought to be included in the assessable income of the taxpayer either as ordinary income, a bounty or subsidy received in relation to the carrying on of a business or as a capital gain as a CGT event C2 (cancellation, surrender and similar endings) or CGT event H2 (Receipt for event relating to a CGT asset).  

The tribunal held that the payment:  

  • was not ordinary income but had the character of a payment of capital  
  • the payment was not a bounty but even if the payment was a subsidy, it was not received in relation to the carrying on of a business  
  • there was a CGT event C2 because the original water licence had been cancelled by legislation and replaced with a water access licence  
  • a CGT even C2 has priority over an CGT event H2 so no consideration had to be given as to whether or not a CGT event H2 had occurred  
  • although there was a CGT event C2 the event occurred in a later income tax year.  

Interestingly, the outcome was similar to the Commissioner’s class ruling under the Cod Grounds Commonwealth Marine Reserve Structural Adjustment package 2004. One wonders therefore why the Commissioner sought to take a different position in relation to this case.