A grant is not free money in the way a business owner sometimes hopes. In most cases it is income, it goes in the tax return, and the only real questions are whether GST is attached and whether the particular grant happens to be one Parliament has declared tax-free. Getting that wrong does not usually cost the grant, but it does produce an unpleasant conversation at tax time.
This guide is general information drawn from Australian Taxation Office pages. It is not tax advice. The point of it is to make the conversation with your accountant or bookkeeper a short one.
Grants are usually assessable income
The ATO's list of what a business must include in assessable income names government payments that are assessable alongside ordinary sales income.[1] Commonwealth grant guidelines say the same thing from the other side: grants are assessable income for taxation purposes unless exempted by a taxation law, and the granting agency does not provide tax advice.[7]
So the starting assumption for a business grant, an apprentice incentive, an energy-upgrade rebate paid to the business, or a capability subsidy is that it is income in the year it is received or derived. The grant funds the project; the tax on the grant still has to be found.
The short list that is tax-free
Some grants are non-assessable non-exempt income, usually shortened to NANE. If a grant is NANE you do not include it in the return and you do not pay tax on it.[2] The ATO's page lists three families: certain COVID-19 business support payments, certain natural disaster grants, and water infrastructure improvement payments.[2]
The disaster category is narrower than it sounds. The ATO states that disaster support grants are assessable income unless Parliament has declared them non-taxable, and at the time of checking its page named only two such declarations: the Category C grant for Cyclone Seroja in April 2021 and the Category D grant for the February to March 2021 storms and floods.[5] A disaster grant that is not on the list is assessable.[5]
The practical rule is simple. Unless you can point to the ATO page or the legislation that makes a specific grant NANE, treat it as income.
GST depends on what you give back
This is the part that trips people up. The ATO's guidance says the GST treatment of a grant depends on whether something is supplied in return for it.[3] A grant is generally not payment for a supply if all you have to do is satisfy eligibility criteria, such as operating in a state, employing people or holding an ABN, and income-support style payments to business are typically not for a supply.[3]
A supply does exist where you enter a binding obligation to do something, refrain from doing something, or provide goods or services in return for the money.[3] Where the grant is payment for a taxable supply, the recipient must remit one-eleventh of it as GST.[3] Both the grantor and the grantee have to treat the transaction consistently, and if the granting body issues a recipient-created tax invoice showing a taxable sale, the grantee pays the GST.[3]
The ATO's plain-English version: a GST-registered organisation that receives grant funding does not pay GST on it unless it makes a supply in return.[4]
Two things follow. First, read the grant agreement, because a funding deed with deliverables and reporting obligations looks a lot more like a supply than a rebate for meeting criteria. Second, look at how the agency has worded the payment. Commonwealth guidelines commonly state that where GST applies the agency will add GST to the payment and issue a recipient-created tax invoice, and that GST does not apply to grant payments to government-related entities.[7] Whether that gross-up happens for your grant is a question for the agreement and the agency, not an assumption.
What actually turns up at tax time
Government entities report grants paid to ABN holders on a Taxable payments annual report, and those payments can appear pre-filled in an individual's return, where a type of income has to be selected, including the option for non-assessable government payments.[6] For a sole trader that means the ATO may already know about the grant before the return is lodged.
We could not find a dedicated grant label on the BAS, nor a single consolidated ATO list of every NANE grant across all programs. Treatment is worked out grant by grant, which is why the agreement matters.
Five questions for your accountant
- Is this grant assessable income, or is it on an ATO NANE list?[2]
- Does the agreement oblige us to supply anything in return, and has the agency treated the payment as a taxable supply?[3]
- If GST applies, is the payment grossed up and will a recipient-created tax invoice be issued?[7]
- Which financial year does the income fall into, given milestone payments can straddle 30 June?
- Are the project costs deductible or depreciable in the ordinary way, so the after-tax value of the grant is understood before we commit to co-contributions?
Take the grant agreement and the guidelines to that meeting. The answers live in those two documents far more than in any general rule.
Grant & Tender Co researches eligibility and prepares applications. It does not give tax, legal or financial advice, and nothing above replaces advice from a registered tax agent who has seen your agreement. ATO pages were checked on 7 September 2026.