Due to the fast release of State and Federal Covid-19 grants and payments, there has been some confusion if the payments are classified as assessable income or non-assessable income. The confusing answer? Some grants and payments are, while others are not.
You won’t need to pay tax, especially on those grants and payments that aid small business, but you will need to declare them in your tax return as non-exempt (NANE) income for tax purposes. Currently, there are two types of grant programs that are classes as NANE:
- State and Territory grants relating to the recovery of COVID-19
- Commonwealth support payments established under the COVID-19 Business Assistance Program
Pro Tax Tip: Each grant has its own set of eligibility criteria your business needs to meet in order to qualify
Are You Eligible?
NANE income meets these three criteria:
- The payment must be received under an eligible State of Territory grant or Commonwealth support program
- Your SME earns an aggregated turnover of less than $50 million in the income year in which it was received
- Your grant payment was received in 2020-21 or 2021-22 financial years for eligible State or Territory grants, or 2021-22 financial year for eligible Commonwealth programs
The following is a list of eligible grant and support programs:
VIC state grants
- Alpine Business Fund
- Alpine Resorts Support Program (Streams 1, 2 and 3)
- Business Continuity Fund
- Business Costs Assistance Program Round Two
- Business Costs Assistance Program Round Two – July Extension
- Business Support Fund 3
- Impacted Public Events Support Program
- Independent Cinema Support Program
- Licensed Hospitality Venue Fund
- Licensed Hospitality Venue Fund 2021
- Licensed Hospitality Venue Fund 2021 – July Extension
- Live Performance Support Program
- Melbourne City Recovery Fund – Small business reactivation grants
- Outdoor Eating and Entertainment Package
- Small Business COVID Hardship Fund
- Sole Trader Support Fund
- Sustainable Event Business Program
NSW state grants
- 2021 COVID-19 Business grant
- 2021 COVID-19 JobSaver payment
- 2021 COVID-19 Micro-business grant
- NSW Performing Arts COVID Support Package
QLD state grants
- COVID-19 Business Support Grants
- COVID-19 Border Business Zone Hardship Grants
Pro Tax Tip: As lockdown are called, the Federal and State governments will announce extensions or announcement of new grants. It’s best to keep your eyes out to see if your small business qualifies.
Cash payments received under state government business support/lockdown assistance or support packages do not need to pay GST. You have not made a taxable supply and don’t need to provide anything of value to receive the payment. Your business should only meet the eligibility criteria for each funding application.
Fred’s Flowers, is a small business operating in Victoria. Fred’s flowers received an eligible grant under the Business Costs Assistance Program Round 2 for the 2020-21 financial year. This program was declared eligible for NAME income. Fred’s Flowers self-assessed and identified that they are a small business with an aggregated turnover of less than $50 million in the same income year that payment was received. Fred’s Flowers do not need to include the grant as business income because of the met the eligibility criteria. Fred’s Flowers do not need to pay GST because they did not provide anything of value to the state government.
Pro Tax tip: If you have already lodged your businesses’ income tax return and included NANE payments as assessable income, you can amend your return and may get a refund.
What Are The Tax Treatments of Government Payments to Business?
Unless the grant of payment is classed as NANE, business assistance payments are classified as assessable income. This includes assistance provided as a series of payments or lump sum. Payments will be made depending on accounting methods.
If your business uses an accrual accounting method, the income will be derived when the right to the government payment arises. If your business operates using a cash accounting method, the income will be derived when the government payment is received.
Non-Taxable Government Support Packages
Your business might be eligible for support packages that include non-taxable expenses. These expenses include costs associated with the application process and incurred to satisfy the eligibility requirements of applying for the grant.
Some tax deductions may not be eligible for such expenses relating to the grant, while others may be passed. Tax deductions on these expenses should relate to gaining your assessable income. Expenses need to be apportioned relating to the non-taxable government grant.
If the grant is one that your business normally incurs and relates to the whole of the business, you can claim a tax deduction for the whole of the expense.
Pro Tax Tip: There is no set way to apportion costs, but they should be fair and reasonable. You’ll need to keep records to show how you worked out this expense.
JobKeeper and Other Measures
All JobKeeper payments are assessable income. Tax deductions can be calculated and claimed upon lodgement of an individual, sole trader or businesses tax return.
Where Do You Find And Apply For Business Grants?
Business.gov.au has a list of grants at Federal and State levels and include both NANE and non-NANE grants.
Applications for grants usually require business income statements. It’s best to provide accurate information based on the current financial situation of your business. ITP Accounting Professionals are experienced in providing documentation for grant applications. Phone 1800 367 487 and chat with a professional today.