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  • GST and grants

    The GST treatment of grants depends in part on whether something is supplied in return for the grant or sponsorship money.

    On this page:

    When a grantee (you) makes a supply

    You don’t have any GST implications if the government funding (grant) is not for a supply. If you provide something of value in return for the grant it can be a supply and GST implications may arise.

    Generally, a grant is not a payment for a supply if you are only required to satisfy eligibility criteria to receive the grant. Eligibility criteria you may need to satisfy to receive a grant can include:

    • operating a business located within a state or territory
    • employing people
    • holding an Australian Business Number (ABN).

    Government payments aimed at giving income support to business are typically not for a supply and therefore will not have any GST implications.

    Providing something of value for the payment will require you to do something more than just meet the eligibility criteria. You will be making a supply to the government in return for the payment if you do any of the following:

    • enter into a binding legal obligation to do something (such as agreeing to display at least 70% locally made products in your shop for 12 months)
    • enter into a binding legal obligation refrain from doing something (such as agreeing to stop grazing on your land near national forests for the next two years)
    • provide goods and services.

    If the grant is for a supply that is a taxable supply, you will be required to remit 1/11th of a grant as GST.

    Example 1: Payment to support COVID-19 impacted business

    Franco operates a fitness centre which employs six full time and three casual workers. As a result of COVID-19 the fitness centre is closed for three months and operates at reduced capacity after re-opening.

    The state government provides a $10,000 cash payment to businesses that meet eligibility criteria showing they have been impacted by COVID-19. The funds may only be used for unavoidable business expenses. Any funds not spent will need to be repaid.

    Franco provides a declaration that he meets the eligibility criteria, applies for and receives the $10,000 payment. He spends the payment on paying outstanding business utility bills, purchasing replacement stock and deep cleaning the premises so he can reopen. Franco is required to keep records for five years.

    The payment is made to provide financial support to ease the pressures faced by small business impacted by COVID-19. Franco does not enter into any legally binding obligations in return for the provision of the payment. The fitness centre only needs to meet eligibility requirements as stipulated in the funding application. The payment is not for any supply provided by Franco to the state government.

    Franco does not have to pay GST on the cash payment received.

    End of example

    Example 2: Payment to support bushfire impacted grantee

    A government program’s objective is to provide financial assistance targeted to certain grantees directly impacted by the bushfires to assist in the recovery of production. Eligible entities are required to meet the eligibility criteria set out for the program.

    The grantee is permitted to use the funds for activities directly linked with:

    • re-establishing areas of active production that were damaged or destroyed
    • making certain repairs
    • cleaning up damaged infrastructure.

    Ineligible activities include:

    • repair of or replacement of sheds
    • rebuilding in areas that were not in active production
    • repairing damage to residential properties
    • repairing damage or activities covered under existing insurance policies or other state or commonwealth grants.

    The payment is not being provided for any legally binding obligations being entered into by the grantee. The grantee has certain eligibility criteria that they must meet, however, meeting these criteria does not involve the grantee making a supply to the government.

    The financial assistance is not a payment for any supply and therefore the grantees do not have to pay GST on the cash payment received.

    End of example

    See also:

    If you're unsure about GST on your grant

    Both the grantor and grantee must treat grant transactions consistently for GST purposes.

    Some government and other entities provide recipient-created tax invoices (RCTI) for grants.

    To make sure that the grant arrangement is treated consistently for GST purposes, if the RCTI shows that the grantee is making a taxable sale, the grantee must pay the GST. If the grantee thinks it is not a taxable sale and an RCTI is issued showing that it is a taxable sale, they should discuss this with the grant provider.

    If the grantee and grantor disagree about the GST implications for the grant arrangement, they can consider requesting a private ruling. We recommend that the grantee and grantor lodge a joint private ruling request so that we can provide both with consistent advice based on accurate facts.

    See also:

      Last modified: 09 Dec 2020QC 21423