Small business coronavirus grants now tax-free

The changes to the income tax law apply to the 2020-21 income year and later income years under the Treasury Laws Amendment (2020 Measures No. 5) Bill 2020.

The bill applies to payments received by eligible businesses under certain grant programs administered by a state or territory government.

The legislation follows on from Treasurer Josh Frydenberg’s announcement on budget night to make tax free certain small-business grants relating to the coronavirus recovery.

Mr Frydenberg said that eligibility was to be restricted to grants announced on or after 13 September 2020 and for payments made between 13 September 2020 and 30 June 2021.

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 bill’s explanatory memorandum explained that as part of the response to the coronavirus pandemic, state and territory governments are providing grants to certain businesses to help them manage the impacts of the pandemic on their business – such as businesses subject to public health directives whose trading has been restricted.

A recent example cited was the Victorian government providing financial support to businesses that are significantly impacted by restrictions enforced during its second lockdown in August.

Normally under the income tax law, such state and territory-based grants are generally considered to be taxable income by the Commonwealth.

“Treating certain state and territory-based grants as non-assessable non-exempt income for tax purposes ensures these payments are not subject to income tax by the Commonwealth,” the memorandum said.

“This concessional treatment will further support and aid the economic recovery of affected businesses.”