# ATO guidance on deductibility of expenses related to receiving non-taxable government support payments



## Jack Malarkey (Jan 11, 2016)

Australian Taxation Office:



ATO.GOV.AU



*Deductions for expenses incurred by businesses receiving government support payments that are non-taxable*

In the course of carrying on a business, you may incur one or more expenses that are related to getting a government grant that is non-taxable. Such expenses may include costs associated with the application process and expenses incurred to satisfy an eligibility requirement of the grant.

In some cases, you may not be able to claim a tax deduction for some or all of an expense that is related to the grant. In other cases, you will be able to claim a tax deduction for the whole expense.

*Expenses incurred by a business solely to get a non-taxable government grant*

You cannot claim a tax deduction for these expenses.

_Example 1 – Expenses incurred solely to get a non-taxable government grant_

Flame Pty Ltd engages a bookkeeper to apply for a non-taxable government grant on their behalf.

The bookkeeper provides no other service to Flame Pty Ltd and gives them an invoice for a fee solely for applying for the grant on their behalf.

Flame Pty Ltd cannot claim a tax deduction for this fee.

End of example

*Expenses incurred by a business both to gain assessable income and to get a non-taxable government grant*

You can only claim a tax deduction for the part of these expenses that relates to gaining your assessable income. You cannot claim a tax deduction for the part that relates to getting the non-taxable government grant.

There is no set way to work out the part of the expense that relates to each purpose, but the way you work it out should be fair and reasonable. You should keep a record of how you work it out.

_Example 2 – Expenses incurred to gain assessable income and to get a non-taxable government grant_

Flame Pty Ltd is eligible to receive a government grant that is non-taxable.

Flame Pty Ltd asks their accountant to apply for this grant on their behalf. Their accountant does not separately bill Flame Pty Ltd for this service, but itemises the fee charged for applying for the grant in a quarterly bill that they give to Flame Pty Ltd for professional services provided over the quarter.

Flame Pty Ltd cannot claim a deduction for this part of the bill.

End of example

*Expenses that you would usually incur in the ordinary course of carrying on your business, but are incidentally related to getting a non-taxable government grant*

You can claim a tax deduction for the whole of these expenses.

Getting a government grant is considered incidental where the expense is one that relates to the whole of your business and is of a kind you would usually incur. We will consider that a government grant is not incidental where the expense is not one that you usually incur and is a pre-condition of being eligible for the grant.

_Example 3 – Expenses incidentally related to getting a non-taxable government grant_

Flame Pty Ltd is eligible for a non-taxable government grant if they keep their staff on the payroll.

Flame Pty Ltd uses the grant to pay for wages, rent and utilities that they would ordinarily incur in carrying on his business.

Flame Pty Ltd can claim a deduction for the wages, rent and utilities paid.

End of example

If you act in good faith and use your best endeavours to determine whether you are entitled to a deduction for an expense related to a government grant that is not taxable, we will generally not apply compliance resources to confirm if the expense is deductible.


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## Jack Malarkey (Jan 11, 2016)

_Accountants Daily_

Tuesday 31 August 2021

Jotham Lian





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*ATO issues guidance on tax deductions for NANE COVID-19 grants*

Small businesses who pay an accountant or bookkeeper to apply for a tax-free COVID-19 grant on their behalf will not be able to claim a tax deduction for that service, under new guidance published by the ATO.

The guidance comes as Treasurer Josh Frydenberg declares a number of New South Wales and Victorian COVID-19 business support programs to be eligible for non-assessable non-exempt (NANE) income treatment.

Under the new law, payments will be treated as NANE income if they were made under an eligible program, received in the current financial year, and were received by a business with an aggregated turnover of less than $50 million.

ATO guidance has now be updated to identify expenditure rendered non-deductible in the production of NANE income, including accounting fees related to the application of the grants.

In an example provided by the ATO, a bookkeeper has been engaged by a business to apply for a tax-free government grant on their behalf. The bookkeeper provides no other service and charges the business a fee for the application. The fee cannot be claimed as a tax deduction.

Likewise, the ATO notes that if a business receives an invoice from their accountant for the application of the grant, alongside other professional services, a deduction cannot be claimed for the part that relates to getting the non-taxable government grant.

“There is no set way to work out the part of the expense that relates to each purpose, but the way you work it out should be fair and reasonable,” said the ATO.

“You should keep a record of how you work it out.”

The ATO states, however, that they will not commit compliance resources where a business acts in good faith.

“If you act in good faith and use your best endeavours to determine whether you are entitled to a deduction for an expense related to a government grant that is not taxable, we will generally not apply compliance resources to confirm if the expense is deductible,” said the ATO.


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## Jack Malarkey (Jan 11, 2016)

These government grants are not subject to GST as you don’t provide a service or make any other kind of supply for them.

You are, however, entitled to claim a GST credit for expenses incurred in receiving them.

So, for example, if you paid an accountant a fee to help you confirm that you qualified for the grant, you can claim the GST credit on your accountant’s fee (even though the fee isn’t deductible as it’s incurred in receiving non-taxable income).


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