Private ruling: Income - Grant
Published: July 2012
Ruling period: Year ended 30 June 2010 | Year ended 30 June 2011
Date scheme commenced: 01 July 2009

Ruling: Q1: Is the grant that you received assessable income? | A1: Yes

Relevant facts and circumstances: You received a grant. The grant was used to assist with the expansion of your business which would in turn create more opportunities for you to employ people. The grant was received after the business had been established.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 and | Income Tax Assessment Act 1997 section 15-10.

Reasons for decision: Summary: Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year Section 15-10 of the ITAA 1997 provides that an amount is included in assessable income if it is: · a bounty or subsidy; · received in relation to carrying on a business; and · not assessable as ordinary income under section 6-5 of the ITAA 1997. The terms 'bounty' and 'subsidy' are not defined in income tax legislation. The word 'subsidy', as noted by Windeyer J in Placer Development Ltd v. Commonwealth of Australia (1969) 121 CLR 353, derives from the Latin 'subsidium' meaning 'an aid or help'. The Macquarie Dictionary defines subsidy as including 'a grant or contribution of money'. The ordinary meaning adopted by case law is 'aid provided by the Crown (government) to foster or further some undertaking or industry', which includes the payment of a financial grant. A subsidy will be 'in relation to' carrying on a business when there is a real connection between the subsidy and the business. The term 'in relation to' includes within its scope subsidies that have a direct or indirect connection to the business. As stated by Hill J in the First Provincial Building Society v. FCT (1995) 56 FLR 320; 95 ATC 4145; (1995) 30 ATR 207 (the First Provincial case) when considering the former paragraph 26(g) of the Income Tax Assessment Act 1936: The words 'in relation to' are words of wide import. They are capable of referring to any relationship between two subject matters in the present case the receipt of the bounty or subsidy, on the one hand, and the carrying on of the business, on the other ... the degree of connection will be 'a matter of judgment on the facts of each case'... What is necessary, at the least, in the present context is that there be a real connection...the relationship need not be direct, it may also be indirect. The expression 'carrying on of the business' looks to the activities of the business which are directed towards the gaining or producing of assessable income rather than merely to the business itself. In First Provincial, the Full Federal Court held that although the receipt lacked the necessary connection with the taxpayer's business activities to constitute ordinary income, it was received in relation to the carrying on of the taxpayer's business because the payment assisted the taxpayer to continue to carry on the taxpayer's business activities as a building society. In your case, you received a grant to assist with the expansion of your business, which in turn created more opportunities for you to employ people. The payment that you received is considered to be a bounty or subsidy, which is not assessable as ordinary income under section 6-5 of the ITAA 1997, and was received in relation to carrying on a business. Therefore it is assessable under section 15-10 of the ITAA 1997 in the income year which it is received.

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