Whether you have to pay income tax on grants and subsidies depends on the type of payment and who you got it from.
You need to pay income tax if:
- You get a grant or subsidy where the payment is based on your income, the difference between your actual income and what you should have got, or your income being too low.
- You get a grant or subsidy for a business expense like vehicle costs, rent, rates or insurance. This does not include government grants.
- You use a Work and Income self employment subsidy for private costs like groceries. (You can use a Work and Income subsidies for private costs, but not grants.)
- You do not use all of a grant or subsidy, so the remaining amount goes into an organisation's general fund. In this case the remaining amount will be taxable.
You do not need to pay income tax if:
- You get a grant or subsidy to help pay for capital assets or expenses that do not produce income.
- You get a grant or subsidy to help pay for, or reinstate, a capital asset that will be used to produce gross income.
In either case you can claim depreciation on the asset's value, reduced by the amount of the grant or subsidy.
Specified suspensory loan and repayment
If you are given a specified suspensory loan and you do not have to pay it back, the amount left unpaid is counted as gross income.
You'll need to split what is left unpaid into 3 equal amounts and add them as gross income across 3 years. 1 for the year repayment is no longer needed, and the others for each of the 2 years after that.
Wage subsidies and being an employer
When you get a wage subsidy, for example Work and Income’s Flexi-wage, you'll need to be registered as an employer. You'll also have your employer responsibilities, for example deducting PAYE and paying FBT (fringe benefit tax).