When does an organisation have to pay tax on grants?

An organisation will have to pay income tax if:

  • it has received a grant or subsidy based on ‘income received, income foregone or an income deficiency’
  • the payment was made towards expenses incurred in an earning gross income (except government grants)
  • surplus from a grant or subsidy become part of the organisation’s general funds

An organisation is not liable for income tax if:

  • a grant or subsidy was paid to offset any capital expenses that don’t produce an income
  • payment was made to offset the cost of a capital asset or to reinstate an asset
  • claims for depreciation must be based on the cost of the asset, less the amount of the grant or subsidy