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Edited version of private advice
Authorisation Number: 1051592585100
Date of advice: 17 October 2019
Ruling
Subject: Assessable income from a government grant
Question
Is a government Grant to industry to continue business ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
Yes
This ruling applies for the following period:
1 July 20XX to 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
You started a business using particular equipment.
You subsequently applied for a grant. The Grant was under a specific programme.
You received the Grant a number of months later.
You included the income and declared the Goods & Services Tax (GST) in the relevant business activity statement for the period the funding was received.
The funding was provided to allow you to lease equipment to be used in your business and to assist with employing workers.
You as the Provider were required to lease specific equipment.
You have provided the relevant details of the agreement.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 6-5
Reasons for decision
Section 6-5 of the ITAA 1997 includes the ordinary income derived directly or indirectly from all sources in and out of Australia as the assessable income of an Australian resident for taxation purposes.
Ordinary income has generally been held to include three categories of income. They are income from rendering personal services, income from property and income from carrying on a business.
Taxation Ruling TR 2006/3 Income tax: government payments to industry to assist entities (including individuals) to continue, commence or cease business deals with government payments to industry to assist entities (including individuals) to continue, commence or cease business.
Under paragraph 4 government payments to continue business include payments to assist with operating costs.
Paragraph 10 states a government payment to industry (GPI) to assist a business to continue operating, except where the payment is for agreeing to give up or sell part of the profit yielding structure, is included as assessable income of the recipient under section 6-5 or section 15-10 of the ITAA 1997.
Paragraph 12 states a GPI to assist with business operating costs or liabilities is ordinary income in the hands of the recipient and is assessable under section 6-5 in the income year in which it is derived.
In this case the Grant was provided to purchase, lease or acquire specific equipment, with specific conditions. You had started your business using your particular equipment and then subsequently applied for the Grant.
You are to use the Grant only in accordance with the Project Agreement. The Grant is to be used for the Project it is provided, unless the Commonwealth approves for an alternative use.
You started your business using your particular equipment. It is clear that the Grant was provided to assist you to continue to operate your business. The Grant is therefore assessable under section 6-5 of the ITAA 1997 when it was derived.
The Grant is not assessable as a bounty or subsidy under section 15-10 of the ITAA 1997 as it is assessable under section 6-5 of the ITAA 1997.