WELCOME TAX RELIEF ANNOUNCED ON FLOOD GRANTS
10th April 2019
“Common sense has prevailed, with the Federal Government announcing that flood grants would be tax- free!"
Author: Gbemmie Aisida
In the wake of the memorable two weeks of “wet”, not only did we survive the monsoon trough, the good people of North and West Queensland spiritedly pressed on. There simply was nothing else to do other than to start the long process of bouncing back, picking up what was left from the inundation and destruction.
Small businesses, primary producers and individuals have had access to a range of funding and disaster recovery assistance programs from the State and Federal Governments. You can find more on this in our past articles - click here
While these measures are welcome, we have had queries around why government grants aren’t tax free.
Whether you use the grant funds to acquire new assets, rebuild or repair a capital asset or acquire live stock or replant crops for the purpose of carrying on your business- government grants are generally considered assessable income.
This means that if you were to use the funds in your business to cushion the loss of profits you would have suffered or to buy a capital asset or livestock which normally should be assessed under capital and not revenue account, the income would be taxed in the income year the grant is received.
The law would treat the grant as a subsidy when used for a capital asset in carrying on your business or treat it as ordinary income when used on a revenue account. Either way, it remains taxable.
It has traditionally been a case of government giving with the left hand before taking it back with the right hand.
Common sense has prevailed however, with the Federal Government announcing in Budget 2019 that flood grants would be tax- free!
It is well- done to the government and good news to the people of North and West Queensland.
The extra cash saved can be used for other capex or income producing activities. There is no GST implication on the grants.
While long overdue, it is great to see common sense applied to the flood recovery decision making process.