Business Grant Tax Guide: What You Need to Know About COVID-19 & Disaster Recovery Grants

If you have recently received a business support grant to help your business through tough times, it’s important to understand how the Business Grant Tax Solution applies. Knowing which grants are taxable and which are not can make a big difference when preparing your business’ tax return. While the basic principle is that most business grants are treated as assessable income, some grants are exempt from tax if the relevant eligibility requirements are met—making the Business Grant Tax Solution an essential guide for managing your finances correctly

COVID-19

A COVID-19 business grant or support program payment you received in the 2020–21 or 2021–22 financial year from a State or Territory government, or in the 2021–22 financial year from the Commonwealth Government, will not be taxable if:

The payment is received under an eligible program – the ATO has published on its website a list of eligible grants and support programs (ref QC 66889); and
You carried on a business and have an aggregated turnover of less than $50 million in either the income year the payment was received or the previous income year.
If you included a grant in your tax return that is not taxable, you can amend your return.

Storms and Floods

Small businesses and primary producers affected by storms and floods may be eligible to receive special disaster recovery grants.

Grants may be administered by a State or Territory government or the Commonwealth Government.

You don’t need to pay tax on certain categories of grants for the following storms and floods:

• Cyclone Seroja (occurred on 11 and 12 April 2021) – Category C disaster recovery grants paid under the Disaster Recovery Funding Arrangements 2018 to small businesses and primary producers who were affected by Cyclone Seroja are not taxable. If you have lodged your 2021–22 tax return and included a Category C recovery grant in your assessable income, you should amend your return. You may get a refund.
   
• 2021 Storms and floods (occurred between 19 February 2021 and 31 March 2021) – Category D recovery grants are not taxable as from the 2020–21 financial year.
  2019 North Queensland floods (occurred between 25 January 2019 and 28 February 2019) – Category C or D recovery grants are not taxable as from the 2018–19 financial year. Category C or D recovery grants paid to not-for-profit organisations in response to the 2019 North Queensland Floods are also not taxable.
   
• 2019 North Queensland floods – restocking, replanting or repairing farm infrastructure grants are not taxable as from the 2018–19 financial year and onwards.

Bushfires

2019–2020 Bushfires Relief Recovery payments and benefits provided by any level of government, including local governing bodies, are not taxable.

Deductions

Remember, you can only claim deductions for expenses associated with non-taxable grants if they relate directly to earning assessable income. You can’t claim expenses related to obtaining the grant, such as an accountant’s fees.