Tax deductions

ATO issues guidance on tax deductions for COVID grants

The guidelines come as Treasurer Josh Frydenberg says a number of New South Wales and Victoria state COVID-19 business support schemes are eligible for non-taxable and non-exempt income treatment ( NANE).

Under the new law, payments will be treated as NANE income if they were made under a qualifying program, received in the current fiscal year, and were received by a business whose revenue is ‘total business is less than 50 million.

The ATO guidelines have now been updated to identify expenses made non-deductible in the production of NANE income, including accounting fees related to the application of grants.

In one example provided by the ATO, an accountant was hired by a company to apply for a tax-free government grant on its behalf. The accountant does not provide any other service and charges the company a fee for the request. Fees cannot be claimed as a tax deduction.

Similarly, the ATO notes that if a company receives an invoice from its accountant for the application of the subsidy, alongside other professional services, a deduction cannot be claimed for the part related to obtaining the subsidy. non-taxable government grant.

“There is no set method for calculating the portion of expenses that relates to each objective, but how you calculate it should be fair and reasonable,” the ATO said. “You should keep track of how you worked it.”

The ATO however states that it will not commit compliance resources when a company is acting in good faith.

“If you are acting in good faith and doing your best to determine whether you are entitled to a deduction for a government grant expense that is not taxable, we generally will not apply compliance resources to confirm whether the expense is deductible,” says the ATO.

ATO issues guidance on tax deductions for COVID grants

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Last updated: August 31, 2021

Posted: September 01, 2021