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:
- The grant agreement:
- Tax invoices or Recipient Created Tax Invoices (RCTI)
- Bank statements
- 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.
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.
|Grant||Assessable Income||Allowable Deduction||Year|
|Cash Flow Boost||No||N/A|
|JobKeeper Receipts||Yes||Year received|
|JobKeeper Payments||Yes||Year paid|
|Apprentice and Trainees re-engagement subsidy||Yes||Year received|
|Coronavirus SME Guarantee Scheme||No||N/A*|
|Increased instant asset write-off threshold||No||Yes||Year asset purchased**|
|Qld Regional Wage subsidies||Yes||Year received|
|Small Business COVID-19 Adaption Grant||Yes||Year received|
- *interest paid on loan is tax deductible to the extent the loan is for business use
- **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.
Click to read:
Treasury’s Economic Response to the Coronavirus
Qld State Government’s Grants Schedule
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 firstname.lastname@example.org
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