The various State and Federal Governments have provided business owners with a range of grants and subsidies through the pandemic including the Cashflow Boost, COVID-19 Disaster Payments and JobKeeper. While you might think all government support is tax-free, this is not the case.
To make a government grant or subsidy tax-free, legislation must be passed to classify it as exempt income or non-assessable income.
As a guide, any income received will be assessable unless the Government has legislated for it to be tax-free. For example, JobKeeper is not tax-free, and recipients must include it in their income tax returns. The original JobKeeper payments were $750 a week but were taxed, meaning recipients received $90 less each week based on an annualised $39,000 income of $750 each week. For employers who received JobKeeper payments, these amounts would need to be included as income.
On a Federal level, the Prime Minister has announced that the COVID-19 Disaster Payments will be tax-free.
To make a government grant or subsidy tax-free, legislation must be passed to classify it as exempt income or non-assessable income.
As a guide, any income received will be assessable unless the Government has legislated for it to be tax-free. For example, JobKeeper is not tax-free, and recipients must include it in their income tax returns. The original JobKeeper payments were $750 a week but were taxed, meaning recipients received $90 less each week based on an annualised $39,000 income of $750 each week. For employers who received JobKeeper payments, these amounts would need to be included as income.
On a Federal level, the Prime Minister has announced that the COVID-19 Disaster Payments will be tax-free.
Previously, disaster recovery grant payments to primary producers and small businesses in relation to floods between February 19, 2021 and March 31, 2021 were also made tax-free. Other payments however, such as Pandemic Leave Disaster Payment, for example, are taxable.
The Treasurer has also been granted the power to make COVID-19 relief provided by the States and Territories tax-free but only from September 13, 2020, and only if they request the Commonwealth Government to make it tax-free. It’s somewhat confusing because there are a range of different tax treatments depending on what support you receive and from what source.
To date, only a series of Victorian business grants are tax-free. The recent business grants in New South Wales, Queensland and South Australia have not as yet been declared tax-free (but we expect that this will change).
A new law was passed on Monday August 9 to ensure COVID-19 Disaster Payments dating back to its introduction on June 3 will now be treated as non-assessable non-exempt income. Such payments were previously classified as taxable.
Due to its retrospective application back to June 3, 2021 (when Victoria entered its fourth lockdown), some individuals will now need to lodge an amendment to their 2020/21 tax return if they have already lodged it and included the payment as assessable income.
We understand that Services Australia will now reach out to impacted individuals through a myGov message and SMS.
If you’re not sure about the tax treatment of any grants or subsidies you have received from the Government, we suggest you contact us before you finalise your bookkeeping or submit your tax return for the year ended 30th June, 2021.
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