Edited version of private advice

Authorisation Number: 1051798394510

Date of advice: 05 February 2021

Ruling

Subject: Assessable income - state government grant

Question

Is the Small Business Grant assessable income under section 6-5 of the Income Tax Assessment Act 1997?

Answer

Yes

This ruling applies for the following period:

Year ended 1 June 2021

The scheme commences on:

1 July 2020

Relevant facts and circumstances

You applied for the Small Business Support grant from the State government.

Your application was successful, and you received the grant on XX20.

Relevant legislative provisions

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 (GPI) to assist entities (including individuals) to continue, commence or cease business.

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 11 states a GPI to provide income support because of an actual or expected reduction in business income is ordinary income in the hands of the recipient and assessable under section 6-5 in the income year in which it is derived.

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.

Paragraph 13 states a GPI to reimburse, assist with, or directly pay on behalf of the recipient, the costs of obtaining legal, business, accounting, financial or other professional advice in the ordinary course of business will be on revenue account. The reimbursement, or amount of assistance or direct payment on behalf of the recipient, is ordinary income and assessable under section 6-5 in the income year in which it is derived.

The grant was provided to help you meet the costs of surviving or adapting to new business conditions that arose from the boarder closure. The grant can only be used for eligible costs to help cushion small business impacts due to the boarder closures. You had to meet certain eligibility requirements including submitting evidence to show they had experienced a decline in turnover of at least 75 per cent.

The intention of the grant to meet the trusts ongoing costs of normal business operations or adapting their business operations due to border closures indicate that the payment is income in nature. Therefore, the grant is ordinary income and is assessable under section 6-5 of the ITAA 1997 in the year that it is received.