State grants: are they taxable?

September 2020

Has your business received a grant from your state's government? It's probable that it is taxable

As stimulus activity from both State and Federal governments continues to support business, one question we hear frequently is whether grants are likely to be taxable. The answer is most likely, unless they are specifically excluded from tax.

If the grant relates to your continuing business activities, then it is likely to be included in assessable income for income tax purposes. The position can be different in cases where the payment is made so that the entity can commence a new business or cease carrying on a business.

Are grants subject to GST?

Government grants are not generally subject to GST unless the grant is for a supply of something. The ATO has indicated that the cashflow boost and JobKeeper payments are not subject to GST, this seems to be on the basis that they are not consideration for a supply.

Normally, we look at whether the entity has to do something to obtain the payment / grant. This could include entering into an agreement to do something or refrain from doing something. If not, there won't generally be any GST because no supply is or has been made.

JobKeeper turnover calculations

If GST does not apply to the grant, then it should not be included in the decline in turnover test for the initial phase of JobKeeper or the GST turnover figures that are reported to the ATO on a monthly basis by entities that are participating in JobKeeper.

The exception is the university sector where core Commonwealth Government financial assistance provided is included in the JobKeeper turnover tests.

Talk to us about how stimulus payments and grants work for your accounting

Please contact us on 02 9957 4033 for additional guidance or advice on how to account for stimulus payments in your BAS or tax preparation.

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This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.

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