Are Government Industry Payments Assessable? ATO Guidelines Explained
Are Government Industry Payments assessable to your business? This is a question many Australian business owners ask, especially those who have received government grants, subsidies, or other forms of government payments. Understanding the rules around these payments can feel overwhelming but understanding how they fit into your income tax return is essential for staying compliant and making the most of your entitlements.
This article explains how the Australian Taxation Office (ATO) views different government payments, which ones count as assessable income, and how you should report them. We’ll also look at practical steps for handling these payments in your everyday business activities, so you can focus on what matters most—running your business with confidence.
Understanding Government Industry Payments and Their Tax Treatment
Many businesses receive money from governments—whether it’s help with everyday costs, support during tough times, or incentives to grow. It’s important to know that not all government payments are treated the same when it comes to tax. Some form part of your business income, while others may be treated differently or even as exempt income.
Most government payments you receive for carrying on your business are considered assessable income. This means they need to be included in your tax return and will generally form part of your ordinary income for the year. This includes payments like income support, wage subsidies, and most government grants.
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How the ATO Decides If a Payment Is Assessable
The ATO looks at why the payment was made and how it connects to your business activities. If the payment helps you keep going, cover expenses, or make a profit, it’s usually assessable. For example, if you get a grant to pay rent or wages, or to help you sell goods and services, that money is generally income for tax purposes.
There are some exceptions. Payments that are not connected to your usual business activities—such as one-off disaster relief after a flood or bushfire—might not be assessable. The same goes for some payments under special schemes, like certain COVID-19 support grants, which were not counted as assessable income for a time.
Common Types of Government Payments
Australian businesses can receive several types of government payments—each with its own purpose and tax implications depending on how it relates to your everyday business activities.
Government Grants: These can be for many reasons, like helping you buy new equipment, hire staff, or move into new markets. Most grants to businesses are assessable but always check the details of your grant agreement.
Fuel Tax Credits: If you use fuel in your business, you may be able to claim fuel tax credits. These credits are generally assessable income, not just a refund of your costs.
Wine Equalisation Tax (WET) Producer Rebates: Wine producers might get rebates under the Wine Equalisation Tax scheme—these are usually assessable.
Product Stewardship Payments: Money received for recycling or managing products at the end of their life can be assessable, depending on the program rules.
Capital Grants: If you get money to buy or improve capital assets like property or machinery, the treatment can vary. Sometimes these are assessable, other times they affect the cost base of the asset for capital gains tax calculations.
Small Business Considerations
If you run a small business entity, the rules are generally the same, but you may have access to special concessions. Always check your eligibility for any tax benefits or simpler reporting options.
How to Report Government Industry Payments in Your Tax Return
Once you’ve worked out which payments are assessable, the next step is to report them correctly in your tax return. This helps you avoid mistakes that could lead to extra tax, penalties, or missed deductions.
Where to Include Government Payments
For most businesses, assessable government industry payments are included in your business income section of the tax return. This is separate from other income sources like sales or interest earned.
If you are a small business, you may be able to use simplified reporting for some items. However, government payments usually need to be shown separately so the ATO can see how much you received.
What If You’re a Primary Producer?
Primary producers (such as farmers) have special sections in their tax return for government payments. This is because many payments to primary producers are for things like drought relief or support after natural disasters. The tax treatment can be different, so always check the rules for your industry.
When to Report the Income
Most government payments are assessable in the income year you receive them, even if the grant covers costs over several years. So, if you get a payment in June 2025, it goes in your 2024–25 tax return, regardless of when you spend the money.
Reporting Tools and Pre-Fill
The ATO’s pre-fill service may include some government payments, especially those reported by the government through the Taxable Payments Annual Report (TPAR) system. However, not all payments are pre-filled, so always double-check your records against what the ATO has.
What About GST?
Most government payments do not attract GST because they are not payments for goods or services. However, if your grant requires you to provide something in return—like reports or specific services—GST may apply. This is rare for most business grants.
Special Cases and Exceptions
While most government payments are assessable, there are important exceptions. These include payments classified as exempt income or non-assessable non-exempt (NANE) income.
Exempt Income
Some government payments are specifically exempt from tax. This is uncommon for business grants, but it can happen with certain disaster relief or community support payments.
Non-Assessable Non-Exempt (NANE) Income
During the COVID-19 pandemic, many business support payments were declared NANE income. This meant they were not included in assessable income, but expenses related to these payments could not be claimed as tax deductions.
If you received a COVID-19 grant, check whether it was declared NANE. This will have been set out in the grant documentation or by government announcement.
Natural Disaster and Disaster Recovery Payments
Payments to help businesses recover from floods, fires, or other disasters are sometimes treated differently. They may not be assessable if they are truly for recovery and not part of your normal business income.
Key Terms Clarified
To help you understand how the ATO approaches government payments, here are some key terms explained:
Assessable Income: Money you must include in your tax return as income.
Ordinary Income: Money earned from your normal business activities.
Other Income: Money received that’s not from your main business, such as interest.
Exempt Income: Money that does not need to be included in your tax return.
Capital Gains: Profit made when you sell a capital asset, like property or shares, for more than it cost you.
Capital Loss: Loss made when you sell a capital asset for less than it cost you.
Depreciating Asset: An asset that loses value over time, like machinery or vehicles.
Trading Stock: Goods you buy or make to sell in your business.
Gross Income: Your total income before taking out expenses.
Net Income: Your income after expenses have been taken out.
Monthly Payments: Some grants or subsidies may be paid in regular instalments.
Fuel Tax Credits: Money you can claim back for fuel used in your business.
Wine Equalisation Tax (WET): A tax on wine, with rebates available for producers.
Business Premises: The place where you run your business.
Market Value: What something could be sold for in the open market.
Bad Debts: Money owed to you that you can’t collect.
Product Stewardship: Schemes for managing products at the end of their life, sometimes with government payments.
Practical Advice for Business Owners
Receiving a government payment can be a big help, but it’s important to know the tax rules so you don’t get caught out. Here’s what you can do to stay on top of things:
Check Each Payment: When you receive a government payment, look at the letter or email that comes with it. This will often say whether the payment is assessable.
Keep Good Records: Save all documents related to the payment, including how much you received, when, and what it was for.
Talk to Your Accountant: If you’re not sure how to treat a payment, your accountant can help. They can also check if you’re eligible for any deductions linked to the payment.
Use ATO Resources: The ATO website has guides and tools to help you work out how to report different types of payments.
Plan Ahead: If you expect to receive government payments, factor them into your cash flow and tax planning.
Conclusion
Government industry payments can provide valuable support to your business, but it’s important to know how they fit into your tax return. Most of these payments are considered assessable income because they arise in the ordinary course of your business activities. They should be included as part of your business income in the financial year you receive them. However, if a payment results from an isolated transaction or relates to other business income outside your usual services provided, different tax treatments may apply. Always refer to relevant taxation rulings for specific guidance on how these payments should be classified.
Keeping accurate records and staying informed about the payments you receive is essential for meeting your obligations and avoiding issues with the ATO. Ensure you track all government payments carefully in your tax return for the correct financial year and separate them from other income sources when necessary. If you’re ever uncertain about how to report or classify any payment, consult the ATO website or seek advice from your accountant to clarify the right approach based on your business circumstances.
To manage your tax affairs effectively, start by reviewing all government payments received during the financial year and ensure they are recorded correctly in your documentation. Sharing this information with other business owners can also be helpful for awareness about the tax treatment of such payments. Remember, if you have complex situations or receive large or unusual government payments, professional advice remains the best way to ensure compliance and accurate reporting.