Private ruling: Assessable income - grants
Date of advice: 8 June 2023
Published: 31 July 2023
Ruling period: Year ended 30 June 2022
Date scheme commenced: 1 July 2021

Ruling: Q1: Is the grant you received included in your assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes.

Relevant facts and circumstances: You carry on a business. You were awarded a Grant in the 2021-22 financial year. The Grant was paid to you in 2021-22 in a lump sum payment. Under condition x of this Grant if any of the money granted to you under this agreement is not required you are required to pay this money back to the Commonwealth. As part of this Grant you are required to undertake various activities over the duration of the agreement, and the funding is to facilitate the activities detailed in your Grant application.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5

Reasons for decision: Summary: Section 6-5 of the ITAA 1997 states that your assessable income includes income according to ordinary concepts derived by you as an Australian resident directly or indirectly from all sources, whether in or out of Australia during the income year. Ordinary income has generally been held to include 3 categories, namely, income from rendering personal services, income from property and income from carrying on a business. Taxation Ruling TR 2006/3 Income tax: government payments to industry to assist entities (including individuals) to continue, commence or cease business (TR 2006/3) contains the Commissioner's opinion on how the income provisions apply to various grants paid or funded by the Commonwealth Government. In respect of a government payment to industry (GPI) towards the cost of building or constructing a substantial asset, paragraph 15A of TR 2006/3 states: GPI paid with the intention of funding the cost of building or constructing a substantial capital asset, but contingent on the performance of a contract to build or construct the asset, will generally be assessable under section 6-5 because the GPI will be derived in the course of carrying on a business of building or constructing the asset. While this will generally be the case where the entity is a company, it will be a question of scale and degree for other entities. The building or construction of the asset may alternatively be outside the course of business yet be the result of a transaction entered into with the purpose of making a profit. The Grant you have received for your project is intended to provide funding for the specified activities you are required to perform as outlined in the Standard Funding Agreement. The Grant has been received in the course of carrying on your business and is included in your assessable income under section 6-5 of the ITAA 1997 when it is derived.