According to new guidelines issued by the Australian Taxation Office, small businesses that pay accountants or bookkeepers to apply for tax-exempt COVID-19 grants on their behalf will not be able to claim tax relief for the service.
The Treasurer, Josh Frydenberg announced that some COVID-19 business support programs in New South Wales and Victoria will be eligible for non-assessable non-tax-exempt (NANE) income treatment.
Under the new law, if the payment is made under a qualifying program, received in the current financial year, and received by a business with a total turnover of less than $50 million, the payment will be considered NANE income.
The ATO guidelines have been updated to determine non-deductible expenses when generating NANE income, including accounting expenses related to grant applications.
In an example provided by the ATO, if a business uses a bookkeeper to apply for tax-exempt government subsidies on their behalf and the bookkeeper issues an invoice for a fee solely for applying for the grant on their behalf, then the fee cannot be claimed as a tax deduction.
Similarly, the ATO pointed out that if a company receives a fee for grants applied for from its accountant, as well as other professional services, the portion related to the non-taxable government grants cannot be deducted.
For expenses relating to assessable income and to get a non-taxable government grant, only the charges for the part that relates to gaining your assessable income can be claimed. You cannot claim a tax deduction for the part that relates to getting the non-taxable government grant.
The ATO published “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.”
They also advised “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”.
Should you wish to discuss any of the above matters, please contact our office:
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