Grants, Cash Flow Boost and This Year’s Business Tax Return

Now that the 2020 financial year has closed, it is time to consider Grants, the Cash Flow Boost and This Year’s Business Tax Return.

This year, we have all suffered from the global pandemic in one way of another. Whether through illness, personal isolation, business shutdown, business slowdown and in some cases, business closure.

Thankfully, the Australian, State and Local Governments reacted swiftly to help support Australian business with various forms of economic stimulus and grant funding.

The Australian Government instigated the “Economic Response to the Coronavirus” with several assistance packages, including:

• The Cash Flow Boost;
• JobKeeper Payments;
• Apprentice and Trainees re-engagement subsidy;
• Coronavirus SME Guarantee Scheme; and
• Increase to the instant asset write-off threshold.

State Governments also offered various rescue packages. The Queensland State Government provided a number of grants in the 2020 year, such as the following:

• Regional and SEQ Wage Subsidy; and
• Small Business COVID-19 Adaption Grant

But how is that grant reported in your tax return?

We decided to burst your tax bubble, and shed some light on when grants are assessable.

What your tax adviser needs to know about your Grant?

It is important that your tax adviser remains informed about your business and financial circumstances. Given the funding available this year, there are few businesses that have not received some form of government assistance. Some of the assistance will be documented by formal agreements, some like the cash flow boost merely arriving in your bank account.

As you are no doubt aware, you tax adviser likes to see the evidence.

So for your grant or any subsidies received during the 2020 financial year, this will be:

1. The grant agreement:
2. Tax invoices or Recipient Created Tax Invoices (RCTI)
3. Bank statements
4. Bills and receipts

1. The Grant Agreement

Most information about your grant will be documented in your grant agreement, including:

• who are the parties to the grant agreement
• what are the important dates
• what are the conditions
• what are the milestones
• when the payments will be made

2. Tax Invoices

The Tax Invoice will show the amount expected or if multiple payments the tax invoices will show the amounts to be expected.

3. Bank Statements

Bank Statements will show how much was actually received and when the amount was received.

4. Bills and receipts

Bills and receipts will show that the grant was spent in accordance with the agreement.

HQTAX TIP  We recommend that you keep a separate grants file and copy all the relevant documents into that file. This way, if the business is audited it is much easier to find the information rather that spending hours searching through records and soft files.

Your tax adviser will also need to know are:

• if the grant made to reimburse costs that are made in ordinary course of business;
• if the grant made to reimburse costs that are not in the ordinary course of business;
• if the grant is payable as a single lump sum or after certain milestones;
• if the grant conditional or unconditional; and
• if any amount of the grant repayable.

 Is Your Grant Taxable?

Ask any tax expert this question and they will always answer “that depends”, and this is the right answer.

Some grants and subsidies are assessable in the year in which your business receives the funds, some will be assessable over a number of years, and some may not be assessable at all.

It is important for your tax adviser to review the grant agreement to make the decision as to whether the grant is assessable and if so in which the year the grant is assessable.

The following table shows the tax treatment for some of the grants available this year.

1. *interest paid on loan is tax deductible to the extent the loan is for business use
2. **currently up to 31 December 2020

ATO Grants and Data Matching

It is important to include all assessable income in your business tax return, in the correct year. The ATO obtain information about your grants from other government departments and will match that data to your tax return.

If you have not included the grant in your business schedule, you should expect a data-matching letter from the ATO.  Remember, if you have a conditional grant or unexpended funds, the ATO may not know which year the grant is assessable. So, you will need to prove when the grant was expended and provide supporting documentation.

HQ Financial Group can assist you with your response to the ATO and if necessary help amend your tax return.

Further Reading

Click to read:

Our posts on The Cash Flow Boost and JobKeeper Payments for NFPs & Charities

Treasury’s Economic Response to the Coronavirus

Qld State Government’s Grants Schedule

Final Words

HQ Financial Group is here to help your small business. If you require any assistance with government grants, accounting or business tax returns please contact our office on 1300474829 or email info@hqfinancialgroup.com.au

Disclaimer

The information contained in this site is of a general nature and is not intended to serve as advice. Every effort has been made to offer the most current, correct and clearly expressed information possible within this site. Nonetheless, inadvertent errors can occur and applicable laws, rules and regulations may change. We cannot and do not warranty the accuracy or adequacy of the information. Users should not act or fail to act on the basis of information contained herein. Users are encouraged to contact HQ Financial Group’s professional advisers for advice concerning specific matters before making any decision.

You should contact us in person and discuss with us how the information provided on this website applies to your particular circumstance.