Inland Revenue has released a draft Issues Paper, considering when and how the government grant provisions in the Income Tax Act 2007 may apply to grants and subsidies received by businesses. Where the government grant provisions apply, a grant or subsidy paid by a local or public authority to a business is excluded income and the expense funded by the grant is non-deductible. 

The preliminary conclusions outlined in the issues paper promote a pragmatic and sensible outcome which CA ANZ supports.

Key CA ANZ’s recommendations include:

• To increase taxpayer certainty and reduce compliance costs, a generic government grants provision should apply to specifically named grants and subsidies approved by Order in Council.
• The legislation could be simplified so that a grant is deemed to be derived when the payment is received, rather than when the conditions (if any) are satisfied.
• The first step is to determine whether the funding is income, not whether the government grant provisions apply. Once it has been established the grant is income, if the purpose of the grant is to fund deductible expenditure or depreciable property, the government grant provisions will apply. If the government grant provisions do not apply, the grant will be income under ordinary principles.