Concepts
Grant
A grant is money or funding given by a government or organisation for a purpose, and its GST treatment depends on whether the payer receives something in return.
A grant is funding provided to a person or organisation, usually by government, a philanthropic body or a company, to support a project or activity. Grants range from small community funding to large research or business programs. For GST, it is not the word grant that matters but whether the money is payment for a supply, in which case GST may apply, or a gift or other payment with no supply in return.
The test is whether the payer receives something in exchange. If the grantor gets goods, services, reports or other benefits as part of the arrangement, the payment is more likely to be consideration for a taxable supply, and a registered recipient would include GST in the amount and report it on the BAS. If the payment is made purely to help the recipient and the funder gets nothing it can use, it is likely to be treated as a gift with no GST. A grant agreement should be read carefully for the obligations it imposes.
Government grants have some special features. There are specific provisions that deal with certain payments from government bodies, and in some situations a payment made by a government related entity is treated as not being consideration for a supply. Whether a given program falls into this category depends on the legislation and the wording of the program, so recipients should check the grant guidelines and ATO guidance rather than assume.
Grants are usually also relevant for income tax. A grant received in the course of running a business is commonly assessable income, and some are exempt, so the recipient should check the treatment of each program. The income tax timing may differ from the GST timing, particularly where the money is received before the work is done. A registered business must also consider whether the grant increases its GST turnover and any effect on its registration status.
For the purchases made with the grant money, GST credits are generally available to a registered recipient in the normal way, as long as the purchase is for the enterprise and there is a valid tax invoice for amounts over $82.50. A common error is thinking that credits are reduced because the cost was paid for with grant funds. Credits depend on the nature of the purchase, not on where the money came from, although some grants have conditions about how funds can be used.
Many people wrongly assume that a grant never involves GST, or that it always does. Both are wrong. Another mistake is not making a reasonable record of the grant agreement, which is the main evidence of how the payment should be treated. Recipients sometimes also overlook that a grant with conditions may need to be repaid if not spent for its purpose.
Because every grant program has its own terms, this is general information only. Please check the specific agreement with the ATO or a registered tax professional before deciding how to report it.
Worked example
A registered business receives a $22,000 grant under an agreement where the funder receives a training service in return. This is treated as consideration for a taxable supply, so GST included is $22,000 divided by 11, which is $2,000. If it had instead been a pure gift with nothing provided back, no GST would be included. The business buys equipment for $5,500 including GST and claims a $500 credit.
Practical tips
- Read the grant agreement to see what, if anything, the funder receives in return, because this decides whether GST applies.
- Keep separate records of grant income and how funds were spent, in case the funder or the ATO asks for them.
- Do not assume that grant-funded purchases lose their GST credits. Credits depend on the nature of the purchase and your registration.