State and Territory based grants paid to businesses in response to COVID-19 will generally be taxable. The general rule in this area is that grants provided by the government to an entity that carries on a business will generally be assessable to a client as ordinary income or statutory income. Even if they are not ordinary income, government grants are generally assessable income under Section 15-10 ITAA 1997 if they are received in connection with carrying on a business.
This legislation amends the income tax law to make payments received by eligible businesses under certain grant programs administered by State or Territory Governments non-assessable non-exempt (NANE) income so that these payments are not subject to income tax. However, only grants that meet certain conditions will be exempt from tax.
There has been some confusion in this area since the announcement of the changes to the legislation. At a high level the amendments ensure that to be eligible for the concessional tax treatment an entity must:
• Carry on a business and have an aggregated turnover of less than $50 million;
• Receive a payment made under a grant program administered by a State or Territory government (or a State or Territory authority) that is declared to be an © Knowledge Shop Pty Ltd The Round Up December 2020 8 eligible grant program by the Minister (the Treasurer); and
• The payment was received in the 2020-21 financial year.
The amendments provide some further guidance on which grants may be covered by providing that the Minister must, by legislative instrument, declare a grant program to be an eligible grant program if the Minister is satisfied that:
• The program was first publicly announced on or after 13 September 2020 by the relevant State, Territory or authority (this allows the Victorian grant announced on that date to be included);
• The program is responding the economic impacts of the Coronavirus;
• The program is directed at supporting businesses subject to certain restrictions regarding their operations (including being subject to a public health directive that applies to the geographical area in which they operate); and
• The State, Territory or authority has requested the Minister to make this declaration.