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Late last year, legislation passed that provided that certain grant payments in response to COVID-19 would be made non-assessable non exempt income. The legislation requires the Treasurer to declare that a grant program is eligible by legislative instrument if he is satisfied that it was in response to the economic impacts of the coronavirus pandemic and if it was first announced on or after 13 September 2020. 

A legislative instrument released on 23 December 2020 states that six Victorian grants paid to businesses are the first to be potentially classified as non-assessable non-exempt income of the recipients. 

These are the: 

  • Alpine business fund
  • Business support fund 3 
  • Licensed hospitality venue fund
  • Melbourne city recovery fund – small business reactivation grants
  • Outdoor eating and entertainment package
  • Sole trader support fund

It is important to remember that grants paid by state governments will not be automatically considered non-assessable non-exempt income. The grants must meet certain criteria and the Treasurer must make a determination confirming that they can qualify for tax-free treatment after an application has been made by the relevant state government. The ATO’s view is that financial assistance payments made by state or territory governments will generally be taxable in the hands of business entities unless they qualify for tax-free treatment under the rules referred to above. We look forward to seeing if the Treasurer sees fit for other grants in Victoria and other states to receive tax free status.