Whether you're liable for income tax on grants and subsidies depends on:
- who you received the payment from
- the type of payment.
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 gross income. You will need to split what is left unpaid into three equal amounts and add them as gross income across three years. One for the year repayment is no longer needed, and the others for each of the two years after that.
Expenses reduced by the amount of the grant/subsidy payment
Work and Income provide funding to help get business activities get started.
Subsidies can be used for private or non-business-related purposes but grants cannot. For tax purposes it's important to know what type of payment was made.
Grants used for capital expenditure
If you receive a grant for the specific purpose of buying an asset, the grant is not taxable for income tax purposes. The value of the asset for depreciation purposes will be reduced by the amount of the grant.
Wage subsidies and being an employer
When you get a wage subsidy, eg Work and Income’s Flexi-wage, you will need to be registered as an employer. You will also have your employer responsibilities, eg deduct PAYE, pay FBT (fringe benefit tax).