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  • Government grants and payments during COVID-19

    Find out about the income tax and GST consequences of government stimulus measures to assist Australians impacted by COVID-19:

    Further information about the tax implications of government grants is in:

    • GST and grants – the GST treatment of grants depends in part on whether something is supplied in return for the grant or payment
    • Tax Ruling 2006/3 Income tax: government payments to industry to assist entities (including individuals) to continue, commence or cease business

    Australian Government assistance

    On this page:

    JobKeeper and other measures

    An entity participating in the JobKeeper scheme must satisfy the relevant decline in turnover tests. These are based on their GST turnover.

    Government grants that are not for a supply are not included in the calculation of GST turnover.

    A government grant that is for a supply will generally be included in the GST turnover calculation. However, an ACNC registered charity (other than a school or university) may elect to exclude a government grant from its GST turnover calculation under the JobKeeper scheme.

    See also:

    See also:

    Pandemic leave disaster payment

    The Australian Government is providing support for individuals in certain states who can't earn an income because either they:

    • must self-isolate or quarantine at home
    • are caring for someone with COVID-19.

    The payments they receive are assessable income. An individual needs to report this income in their tax return.

    Example – Employee required to self-isolate

    Leah is the food services manager at a nursing home. There is an outbreak of COVID-19 at her workplace. Leah is instructed by a health official to be tested for COVID-19. She is also told to self-isolate for a period of 14 days.

    Leah has used up all of her sick leave entitlements and she is not entitled to any other form of income support from her employer. She isn’t entitled to JobKeeper or any other form of government income support.

    Leah applies for and receives a $1,500 pandemic leave disaster payment in July. This is a lump sum payment to help workers during their 14-day self-isolation period.

    Income tax implications

    In her 2021 tax return, Leah includes the $1,500 government payment as assessable income.

    GST implications

    There are no GST implications. Leah is an employee and doesn't carry on an enterprise.

    End of example

    See also:

    Childcare transition payment

    The Australian Government has implemented measures throughout 2020 to help the early childhood education and care sector manage the impacts of COVID-19. The measures included a Transition Payment available to approved early childhood education and care providers.

    The Transition Payment was made instead of JobKeeper Payment for workers of these providers. It was paid for the period 13 July 2020 to 27 September 2020 (the Transition Period).

    The Transition Payment was paid as a grant under the Community Child Care Fund. It was to support providers to return to the Child Care Subsidy.

    Conditions of the Transition Payment

    Approved providers of child care services must have met certain conditions to receive and maintain the Transition Payment, including:

    • offering an employment guarantee – by continuing to employ those employees over the Transition Period who were working or being paid JobKeeper at the end of the relief package
    • cap fees charged during the Transition Period to an amount that would otherwise have been charged for the same care in the relevant Relief Payment reference period
    • not claim JobKeeper for ineligible employees or themselves as JobKeeper eligible business participants.

    See also:

    Information on the Department of Education, Skills and Training website:

    Tax implications

    Income tax

    A government payment to assist a child care business to continue operating is included in its 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.
    GST

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

    A supply can include either:

    • entering into a binding legal obligation to do something
    • refraining from doing something, in order to receive the payment.

    To receive the Transition Payment, child care providers are required to enter into an obligation to:

    • provide an employment guarantee for their workers who were previously receiving JobKeeper payments
    • cap the child care fees.

    The Transition Payment is a payment for a supply. However, the payment is for a GST-free supply. It is directly related to the supply of GST-free child care. This means that child care providers do not have to pay GST on the Transition Payment they receive.

    Example – Transition Payment

    Penny is an approved provider of a child care service that she operates in the western suburbs of Sydney. Penny also runs a nanny service (not approved child care). She has 20 employees and 15 are employed principally in the operation of approved child care. Five are principally employed in nanny services.

    Penny applies for and starts receiving the Transition Payment from 13 July 2020. She agrees to stop claiming JobKeeper payments for her 15 child care employees and for herself as a business participant for JobKeeper fortnights from 20 July 2020.

    Income tax implications

    In her 2021 tax return, Penny:

    • includes the Transition Payment as assessable income
    • claims business operating expenses as a deduction, in the usual manner.

    GST implications

    Penny does not have to pay GST on the Transition Payment she receives. The Transition Payment is a payment for a GST-free supply. It is directly related to the supply of GST-free childcare.

    JobKeeper eligibility

    Penny may consider accessing the JobKeeper extension for the five eligible employees of her nanny service. The Transition Payment is for a GST-free supply. She needs to include it in the relevant GST turnover calculation when working out her decline in turnover and eligibility for the scheme.

    End of example

    Payments to support the creative economy

    On 25 June 2020, the Australian Government announced a comprehensive COVID-19 Creative Economy Support Package. This is to support artists and organisations to get back in business following the disruptions caused by COVID-19. A range of new grant and loan programs were announced for different parts of the arts sector.

    Example 1 – Cash payment

    Israel runs an event management business. He has to cancel a music festival organised for April 2020 due to COVID-19.

    As social distancing and border restrictions ease, Israel applies to the Australian Government for a grant through the Restart Investment to Sustain and Expand (RISE) fund. He plans to run the music festival in March 2021. The RISE program provides finance to assist the presentation of new or re-shaped cultural and creative activities and events. To be eligible, Israel needs to provide a co-contribution for the activity and have an Australian business number (ABN) and GST registration. Israel does not enter into an agreement with the government to provide the music festival. If Israel chooses not to hold the music festival he is required to repay the funding received and is not under a binding legal obligation to go ahead with it.

    Israel is successful in his application. He receives a $200,000 grant on 1 December 2020.

    Income tax implications

    In his 2021 tax return, Israel:

    • includes the $200,000 government payment as assessable income
    • claims a deduction for the costs of running the music festival, including venue and equipment hire, performers and staff.

    GST implications

    There are no GST implications. The payment is made to assist Israel to provide a re-shaped music festival in 2021. Israel only needs to meet the eligibility requirements in the funding application. He is not providing anything of value to the government in return for the payment, in particular, he is not entering into a binding legal obligation with the government to provide the festival. He does not have to pay GST on the grant received.

    End of example

     

    Example 2 – Concessional loan

    Josiah is the owner and operator of a small theatre. Prior to COVID-19, Josiah’s theatre ran around six productions each year, which members of the general public paid to attend. He doesn't employ any full-time staff.

    As social distancing and border restrictions ease, Josiah applies through his bank for a concessional Show Starter loan. The loans are designed to assist creative economy businesses to fund new productions and events that stimulate job creation and economic activity. The loans are backed by a 100% Commonwealth guarantee.

    Josiah is successful in his application. He receives a $150,000 loan on 1 September 2020, with a 4% interest rate.

    Income tax implications

    Although any income from his theatre productions is included in Josiah’s 2021 tax return, the concessional loan is not included in assessable income.

    In his 2021 tax return, Josiah:

    • includes income from his theatre productions (but not the loan)
    • claims a deduction for the interest payments on the loan and the costs of the theatre productions, in the usual manner.

    GST implications

    There are no GST implications. The concessional loan is guaranteed by the Australian Government to support funding of new productions and events and assist Australia’s creative economy businesses. Josiah only needs to meet eligibility requirements as stipulated to be eligible for the concessional loan. He is not providing anything of value to the government in return for guaranteeing the loan. He does not have to pay GST on the loan received.

    End of example

    See also:

    Find out about:

    State, territory and local government assistance

    In addition to the assistance provided by the Australian Government, individuals and businesses may receive specific financial support from state, territory and local governments to help them respond to the impacts of COVID-19.

    Find out about:

    Payroll tax relief

    Some states and territories are offering support such as increased thresholds, waivers, and interest-free deferrals of payroll tax. The tax consequences of receiving this support will depend on how it is delivered.

    Where payroll tax relief is provided as:

    • no payroll tax payable – the business will have a smaller allowable deduction in their tax return
    • a refund of the payroll tax paid – the allowable deduction for payroll tax will be less any refunds given.

    There are no GST consequences on payroll tax relief provided by state and territory governments to small businesses.

    Example 1 – Payroll tax relief

    Abi operates a hairdressing salon. The state government introduces payroll tax relief for all small businesses to help them cope with the impacts of COVID-19. The relief is delivered as no payroll tax payable for the quarter April to June 2020.

    As Abi received the payroll tax relief, she has a smaller allowable deduction in her 2020 tax return.

    End of example

     

    Example 2 – Payroll tax refund

    Evan operates a backhoe and machinery hire business. The state government introduces payroll tax relief for all small businesses to help them cope with the impacts of COVID-19. The relief is delivered as a refund of the payroll tax paid for the quarter January to March 2020 and no payroll tax for the quarter April to June 2020.

    Evan pays payroll tax of:

    • $50,000 for 1 July to 31 December 2019
    • $25,000 for 1 January to 31 March 2020
    • $0 for 1 April to 30 June 2020.

    Evan receives a payroll tax refund of $25,000 before 30 June 2020.

    Evan’s allowable deduction for payroll tax in his 2020 tax return is $50,000 ($75,000 paid less $25,000 refund).

    There are no GST consequences on the payroll tax relief he receives.

    End of example

    Payments to support business

    Note: Proposed changes were announced in the 2020–21 Budget. The Victorian Government's business support grants for small and medium business announced on 13 September 2020 will be made non-assessable non-exempt (NANE) income for tax purposes. This arrangement will be extended to all states and territories on an application basis, subject to eligibility requirements.

    This announcement is not yet law. For updates on the progress of the law, see our Latest news on tax law and policy.

    Tax treatment of government payments to business

    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 don’t have to pay GST on grant funding unless you provide something of value in return for the payment. Providing something of value can be the supply of goods and services. It could also include entering into a binding legal obligation to do something or refrain from doing something in order to receive the payment.

    Example 1 – Cash payment for running a business

    Boris operates a local café which employs five full time and 10 casual workers and he is registered for GST. As a result of COVID-19 the café is closed for two months and operates at reduced capacity for another two months after re-opening.

    The state government provides a $10,000 cash payment to businesses like Boris’s to help them cope with the impacts of COVID-19. Eligibility for the grant included Boris verifying that he was eligible for JobKeeper and that he carried on a business.

    Boris applies for and receives the $10,000 payment. He spends this 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, Boris:

    • includes the $10,000 payment from government as assessable income
    • includes the stock expenses in his trading stock calculation
    • claims the utility bills and cleaning expenses as a deduction.

    GST implications

    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. Boris 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 he receives.

    End of example

     

    Example 2 – Cash payment to purchase capital asset

    Assume the same facts as Example 1 except Boris applies for and receives the $10,000 payment on 1 April 2020. He spends it on purchasing a new cold room for $11,000 (GST inclusive) which is installed and ready for use on 1 July 2020.

    Income tax implications

    In his 2020 tax return, Boris includes the $10,000 payment from government as assessable income.

    In his 2021 tax return, assuming Boris's business has an aggregated turnover of less than $500 million, Boris can claim the GST exclusive full cost ($10,000) of the new cold room under the instant asset write-off because:

    • the cold room is less than the $150,000 threshold
    • he has the cold room ready for use before 31 December 2020
    • the cold room is only used for business purposes.

    GST implications

    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. Boris is not providing anything of value to the government in return for the payment. He does not have to pay GST on the cash payment received. Boris can also claim a GST credit of $1,000 for the purchase of the cold room in his business activity statement.

    End of example

     

    Example 3 – Cash payment to purchase trading stock

    Assume the same facts as Example 1, except Boris applies for and receives the $10,000 payment. He spends this on replacing trading stock which was discarded when Boris had to close the café as a result of COVID-19.

    Income tax implications

    In his 2020 tax return, Boris includes the $10,000 payment from government as assessable income.

    Boris will include the $10,000 (GST exclusive) stock purchased in his trading stock calculation.

    Boris did not take any items out of trading stock for private purposes during the year.

    Boris’s trading stock account records for the 2019–20 financial year will include the following entries:

    • opening trading stock $35,000
      • add purchases $82,000 (including the $10,000)
      • less sales ($75,000)
      • less waste ($8,000)
       
    • closing trading stock $34,000.

    GST implications

    The payment is made to provide financial support to ease the pressures faced by small businesses impacted by COVID-19. The café only needs to meet eligibility requirements as stipulated in the funding application. Boris is not providing anything of value to the government in return for the payment. He does not have to pay GST on the cash payment received.

    End of example

     

    Example 4 – Cash payment for advice

    Connie operates an independent child care centre. The state government offers a ‘one-off’ payment of up to $1,500 to enable businesses to seek advice to assist them manage the impacts of COVID-19.

    Connie engages her adviser to undertake a review of her business operations and identify cost savings and efficiencies. Connie pays her adviser $2,200 (GST inclusive) for their services. She applies to the state government for the $1,500 payment, which she receives.

    Income tax implications

    In her 2020 tax return, Connie:

    • includes the $1,500 government payment as assessable income
    • claims the $2,000 (GST exclusive) fee paid to her adviser as a deduction.

    GST implications

    The government grant is not for a supply made by Connie. The government has certain eligibility criteria that businesses must meet. However, meeting these criteria does not involve Connie providing anything of value to the government. She does not have to pay GST on the cash payment she receives.

    Connie can claim a $200 GST credit for the purchase of financial advice in her business activity statement.

    End of example

    See also:

    Electricity rebates

    Some states and territories are offering households and some businesses automatic electricity rebates. These rebates are not included in assessable income.

    For a business, the rebate will reduce the deduction the business can claim for electricity.

    Example – Household electricity rebate

    Duncan is a householder. His electricity supplier has provided a rebate of $150 to all householders in recognition of the impacts of COVID-19. The rebate is delivered as a $150 reduction in electricity accounts for the quarter April to June 2020.

    Duncan does not need to include the $150 rebate as assessable income in his 2020 tax return.

    End of example

    Land tax relief

    Some states and territories are providing land tax relief to businesses impacted by COVID-19. The types of land tax relief being offered may include:

    • credits
    • deferrals
    • rebates
    • reductions
    • refunds
    • waivers.

    The eligibility criteria for many of the programs require landlords to have provided rent relief to their business tenants. The taxation consequences of receiving land tax relief will depend on how it is delivered.

    Example 1 – Land tax reduction

    Farisha owns a small block of three shops and is registered for GST. Her tenants are significantly impacted by COVID-19. Farisha reduces the rent for each of her tenants by 50% for the April to June 2020 quarter. Her tenants are not required to pay the rent reduction.

    Farisha applies to her territory government for a 50% land tax reduction for the April to June 2020 quarter, which is approved before June 2020.

    Income tax implications

    Because Farisha received the land tax reduction, she has a smaller allowable deduction in her 2020 tax return.

    GST implications

    Farisha does not have to pay GST for receiving the land tax relief as it is not a reduction in response to a supply by her to the government.

    The GST payable by Farisha on the rent received for the April to June 2020 quarter is reduced in proportion to the rent reduction she gave her tenants.

    End of example

     

    Example 2 – Land tax refund

    Gianna owns a block of 10 shops. Two have been vacant since 1 March 2020. Her tenants are significantly impacted by COVID-19. Gianna reduces the rent for each of her tenants by 25% for the April to June 2020 quarter. Her tenants are not required to pay the rent reduction.

    As a result of COVID-19, Gianna has also been unable to find tenants for her two vacant shops.

    Gianna pays her land tax of $50,000 for the 2019–20 year on 1 April 2020. She applies to her state government for a land tax refund of $10,000 which she receives before June 2020.

    Income tax implications

    Because Gianna received the land tax refund, she has a smaller allowable deduction for land tax of $40,000 in her 2020 tax return.

    GST implications

    Gianna does not have to pay GST on the land tax relief. It is not a reduction in response to a supply by her to the government.

    The GST payable by Gianna on the rent received for the April to June 2020 quarter is reduced in proportion to the rent reduction she gave her tenants.

    End of example

    Rent relief

    Some states and territories are offering support such as waivers or rent reductions (or both) for commercial tenants in government-owned properties. The taxation consequences of receiving such support will depend on how it is delivered.

    Example – Government-owned building

    Hamish operates a gym in a government-owned building. The state government introduces rent relief for small businesses with less than 20 employees to help them cope with the impacts of COVID-19. Hamish receives the rent relief, which is delivered as a 25% reduction in his monthly rent for the quarter April to June 2020.

    Income tax implications

    Because Hamish received the rent relief, he has a smaller allowable deduction in his 2020 tax return.

    GST implications

    If Hamish is registered for GST, his entitlement to GST credits is reduced in proportion to the rent reduction.

    End of example

    See also:

    Last modified: 10 Nov 2020QC 63381