Are COVID grants and payments tax free?

Portrait of a young woman wearing a mask in a city street.

Most people would assume that money provided by the Government to support people and business during a crisis would be tax free. Otherwise, it’s like giving money with one hand and then taking it away with the other, isn’t it?

But the tax laws don’t work like that. To make a payment tax-free, legislation is required to enable it to be classified as exempt income or non-assessable non-exempt income. In general, any income received will be assessable unless the Government has legislated for it to be tax-free. JobKeeper for example was not tax free and anyone who received it in 2020-21 will need to declare it in their income tax return. Businesses also will need to declare JobKeeper income in their tax return even if the full amount flowed directly to employees.

At the Federal Government level, The Treasury Laws Amendment (COVID-19 Economic Response No 2) Bill has passed both houses of Parliament. Among other things, the Bill will:

  • make COVID-19 disaster payments received by individuals due to lockdowns for the 2020-21 income year “non-assessable non-exempt income”(NANE);
  • allow the Federal Government to assist any state and territory that is unable to administer its own business support payments in the event of a significant lockdown; and,
  • allow the Treasurer to determine the tax treatment of eligible COVID-19 business support payments administered by the Commonwealth.

Other payments however, such as Pandemic Leave Disaster Payment, are taxable.

If you’re confused, it’s not surprising. The result is a mix of tax treatments depending on what support you received and from whom.

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 yet been declared tax free (but we expect that this will change).

The general rule is that grants are likely to be taxable unless they are specifically excluded from tax. If the grant relates to your continuing business activities, then it is likely to be included in assessable income for income tax purposes. The position can be different in cases where the payment is made so that the entity can commence a new business or cease carrying on a business but there will still often be some tax implications.

 

Further help

Should you have any questions about how Government COVID assistance affects you or your business, please contact us and we can work with you to help you understand your position.

You can find out more about working with Marsh & Partners here. As your Absolute.Account.Ability partner we’re on a mission to make your business life better. We’ll help you set goals for your business, devise an Action Plan to make them happen and meet with you regularly to ensure you stay on track

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