Issue
Is the receipt of the Commonwealth grant received by the taxpayer assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
Yes. The receipt of the Commonwealth grant is assessable under section 6-5 of the ITAA 1997.
Facts
The taxpayer is a proprietary limited company that administers an industry support program with grant funds, payable over a 5-year period. The taxpayer's role in the program is to assist in the development of an industry sector in Australia by providing capital, financial support, management expertise, accommodation and mentoring to businesses.
The grant is made subject to performance conditions that are outlined in a deed of agreement. The payments of the funds will both establish the company in its role and replenish and augment its capital.
Reasons for Decision
The question here is whether the receipt is of a capital or income nature. The Full High Court identified the following factors in GP International Pipecoaters Pty Ltd v. FC of T (1990) 170 CLR 124; 90 ATC 4413; (1990) 21 ATR 1 (the GP International Pipecoaters Case ): • The receipt of the establishment costs was a gain by the taxpayer in the ordinary course of the business in which it was engaged and therefore income. • The establishment costs were not received under a severable part of the contract. • The receipt was not regarded as capital because it was received in consideration of the performance of a contract.
The taxpayer's circumstances are analogous to the GP International Pipecoaters Case as follows: • The ordinary course of the taxpayers business is the administration of the program under which the grant was received. • An amount was granted to the taxpayer for the purpose of establishing the business and augmenting and replenishing capital. • The grant was not received as a severable part of a contract, but subject to the taxpayer meeting performance conditions in the deed of agreement.
The grant is therefore assessable income under section 6-5 of the ITAA 1997.