Government moves to ensure small-business grants are income tax-free.

The government has taken steps to realise another budget promise by introducing legislation into Parliament to ensure COVID-related small-business grants are treated as non-assessable, non-exempt income for tax purposes.

Treasury Laws Amendment (2020 Measures No. 5) Bill 2020 has entered Parliament, as the government looks to realise its budget initiative to make tax-free certain small-business grants relating to the coronavirus recovery.

On budget night, Treasurer Josh Frydenberg revealed that the Victorian business support grants for small and medium business, as announced on 13 September 2020, will be made non-assessable, non-exempt income for tax purposes.

Going a step further, he noted that this arrangement will extend to all states and territories on application basis, with eligibility to be restricted to grants announced on or after 13 September 2020 and for payments made between 13 September 2020 and 30 June 2021.

And according to the bill’s explanatory memorandum, the Treasury Laws Amendment (2020 Measures No. 5) Bill 2020 sets out to do just that.

The memorandum clarifies that only entities with an aggregated turnover of less than $50 million will be eligible for the concessional tax treatment.

Moreover, the payment must be made under a grant program that is declared by the minister to be eligible and is, in effect, responding to the economic impacts of the coronavirus.

The program must also be directed at supporting businesses subject to certain restrictions regarding their operations, including being subject to a public health directive that applies to the geographical area in which they operate.

“These eligibility requirements ensure that only payments made under grant programs that are directly concerned with managing the impacts of the coronavirus for affected businesses will obtain concessional tax treatment,” the memorandum reads.

The documents also explain that the concessional tax treatment is aimed to ensure that eligible businesses obtain an additional boost to their cash flow, further supporting their economic recovery.

“This is because, in addition to the payments not being subject to income tax (by being treated as non-assessable, non-exempt income), businesses will continue to be able to claim deductions for eligible expenses made with the grant payments.”

Article written by Maja Garaca November 2020