Government grants and payments during COVID-19

Find out about the tax consequences of government stimulus measures to assist Australians impacted by COVID-19.

Australian Government assistance

JobKeeper:

Other:

State, territory and local government assistance

In addition to the assistance provided by the federal government, individuals and businesses may receive specific financial support from state, territory and local governments to help them respond to the impacts of COVID-19.

Find out about common types of support:

Payroll tax relief

Some states and territories are offering support such as increased thresholds, waivers, and interest-free deferrals of payroll tax. The tax consequences of receiving this support will depend on how it is delivered.

Example 1 – payroll tax relief

Abi operates a hairdressing salon. The state government introduces payroll tax relief for all small businesses to help them cope with the impacts of COVID-19. The relief is delivered as no payroll tax payable for the quarter April to June 2020.

As Abi received the payroll tax relief, she has a smaller allowable deduction in her 2020 tax return.

Example 2 – payroll tax refund

Evan operates a backhoe and machinery hire business. The state government introduces payroll tax relief for all small businesses to help them cope with the impacts of COVID-19. The relief is delivered as a refund of the payroll tax paid for the quarter January to March 2020 and no payroll tax for the quarter April to June 2020.

Evan pays payroll tax of:

  • $50,000 for 1 July to 31 December 2019

  • $25,000 for 1 January to 31 March 2020

  • $0 for 1 April to 30 June 2020.

Evan receives a payroll tax refund of $25,000 before 30 June 2020.

Evan’s allowable deduction for payroll tax in his 2020 tax return is $50,000 ($75,000 paid less $25,000 refund).

There are no GST consequences on the payroll tax relief provided by the state government to small businesses.

Payments to support business

A government payment to assist a business to continue operating is included in assessable income. This will include assistance provided as a one-off lump sum or a series of payments. For businesses operating on:

  • an accruals accounting method – the income will be derived when the right to the government payment arises

  • a cash accounting method – the income will be derived when the government payment is received.

Generally, you don’t have to pay GST on grant funding unless you provide something of value in return for the payment. Providing something of value for the payment can include entering into a binding legal obligation to do something or refrain from doing something in order to receive the payment.

Example 1 – cash payment for running business

Boris operates a local café which employs five full time and 10 casual workers. As a result of COVID-19 the café is closed for two  months and operates at reduced capacity for two months after re-opening. The state government provides a $10,000 cash payment to businesses like Boris’s to help them cope with the impacts of COVID-19. Boris applies for and receives the $10,000 payment which he spends on paying outstanding business utility bills, replacement stock and deep cleaning the premises so he can reopen.

Income tax implications:

In his 2020 tax return, Boris includes the $10,000 payment from government as assessable income. He also includes the stock expenses in his trading stock calculation and he claims the utility bills and cleaning expenses as a deduction.

GST implications:

The payment is made to provide financial support to ease the pressures faced by small business impacted by COVID-19. The café only needs to meet eligibility requirements as stipulated in the funding application. Boris is not providing anything of value to the state government in return for the payment. He does not have to pay GST on the cash payment received.

Example 2 – cash payment for advice

Connie operates an independent childcare centre. The state government offers a ‘one-off’ payment of up to $1,500 to enable businesses to seek advice to assist them manage the impacts of COVID-19. Connie engages her adviser to undertake a review of her business operations and identify cost savings and efficiencies. Connie pays her adviser $2,000 for their services. Connie applies to the state government for the $1,500 payment, which she receives

Income tax implications:

In her 2020 tax return, Connie includes the $1,500 government payment as assessable income and claims the $2,000 fee paid to her adviser as a deduction.

GST implications:

The government has certain eligibility criteria that businesses must meet. However, meeting these criteria does not involve Connie providing anything of value to the government. Connie does not have to pay GST on the cash payment received.

See also:

  • Tax Ruling 2006/3 Income tax: government payments to industry to assist entities (including individuals) to continue, commence or cease business

  • GST and grants

Electricity rebates

Some states and territories are offering households and some businesses automatic electricity rebates. These rebates are not included in assessable income. For a business, the rebate will reduce the deduction the business can claim for electricity.

Example – household electricity rebate

Duncan is a householder. His electricity supplier has provided a rebate of $150 to all householders in recognition of the impacts of COVID-19. The rebate is delivered as a $150 reduction in electricity accounts for the quarter April to June 2020.

Duncan does not need to include the $150 rebate as assessable income in his 2020 tax return.

Land tax relief

Some states and territories are providing land tax relief to businesses impacted by COVID-19. The types of land tax relief being offered may include:

  • credits

  • deferrals

  • rebates

  • reductions

  • refunds, or

  • waivers.

The eligibility criteria for many of the programs require landlords to have provided rent relief to their business tenants. The taxation consequences of receiving land tax relief will depend on how it is delivered.

Example 1 – land tax reduction

Farisha owns a small block of three shops. Her tenants are significantly impacted by COVID-19. Farisha reduces the rent for each of her tenants by 50% for the April to June 2020 quarter. Her tenants are not required to repay the rent reduction. Farisha applies to her territory government for a 50% land tax reduction for the April to June 2020 quarter, which is approved before June 2020.

Income tax implications

Because Farisha received the land tax reduction, she has a smaller allowable deduction in her 2020 tax return.

GST implications

Farisha does not have to pay GST for receiving the land tax relief. The GST payable by Farisha on the rent received for the April to June 2020 quarter is reduced in proportion to the rent reduction she gave her tenants.

Example 2 – land tax refund

Gianna owns a block of ten shops, two of which have been vacant since 1 March 2020. Her tenants are significantly impacted by COVID-19 and Gianna reduces the rent for each of her tenants by 25% for the April to June 2020 quarter. Her tenants are not required to repay the rent reduction. As a result of COVID-19, Gianna has also been unable to find tenants for her two vacant shops.

Gianna pays her land tax of $50,000 for the 2019–20 year on 1 April 2020. She applies to her state government for a land tax refund of $10,000 which she receives before June 2020.

Income tax implications

Because Gianna received the land tax refund, she has a smaller allowable deduction for land tax of $40,000 in her 2020 tax return.

GST implications

Gianna does not have to pay GST on the land tax relief. The GST payable by Gianna on the rent received for the April to June 2020 quarter is reduced in proportion to the rent reduction she gave her tenants.

Rent relief

Some states and territories are offering support such as waivers or rent reductions (or both) for commercial tenants in government-owned properties. The taxation consequences of receiving such support will depend on how it is delivered.

Example – government-owned building

Hamish operates a gym in a government-owned building. The state government introduces rent relief for small businesses with less than 20 employees to help them cope with the impacts of COVID-19. Hamish receives the rent relief, which is delivered as a 25% reduction in his monthly rent for the quarter April to June 2020.

Income tax implications

Because Hamish received the rent relief, he has a smaller allowable deduction in his 2020 tax return.

GST implications

If Hamish is registered for GST, his entitlement to GST credits is reduced in proportion to the rent reduction.

Colby Grubb