Business Support Fund – Tax Consequences
A government payment to assist a business to continue operating is included in assessable income. This will include assistance provided as a one-off lump sum or a series of payments. For businesses operating on:
- an accruals accounting method – the income will be derived when the right to the government payment arises
- a cash accounting method – the income will be derived when the government payment is received.
Generally, you do not have to pay GST on grant funding unless you provide something of value in return for the payment. Providing something of value for the payment can include entering into a binding legal obligation to do something or refrain from doing something in order to receive the payment.
Example – Cash payment for running business
Bharat operates a local café which employs five full time and 10 casual workers. As a result of COVID-19 the café is closed for two months and operates at reduced capacity for two months after re-opening. The state government provides a $10,000 cash payment to businesses like Bharat’s to help them cope with the impacts of COVID-19. Bharat applies for and receives the $10,000 payment which he spends on paying outstanding business utility bills, replacement stock and deep cleaning the premises so he can reopen.
Income tax implications
In his 2020 tax return, Bharat includes the $10,000 payment from government as assessable income. He also includes the stock expenses in his trading stock calculation, and he claims the utility bills and cleaning expenses as a deduction.
The payment is made to provide financial support to ease the pressures faced by small business impacted by COVID-19. The café only needs to meet eligibility requirements as stipulated in the funding application. Bharat is not providing anything of value to the state government in return for the payment. He does not have to pay GST on the cash payment received.
Contact Expert Tax on 0449 952 855 or 1300 869 829 for further assistance.