What are government grants?

Grants are run as programs, each with its own guidelines. Some are competitive and assessed against other applicants, such as R&D and innovation grants; others are entitlements paid to anyone who meets the criteria, such as certain rebates. Typical eligibility rules cover entity type (companies, partnerships, sole traders, incorporated associations and charities), an ABN and GST registration where relevant, industry, project stage, location, evidence of financial capacity and, often, a cash or in-kind co-contribution. Official portals such as business.gov.au and GrantConnect list current opportunities.

Once awarded, the grant agreement sets the amount, purpose, milestones, reporting, payment schedule, record keeping and any IP arrangements. Payments may be upfront, milestone-based or paid as reimbursement against receipts or certified completion. Accepting the grant means accepting monitoring, audits and the possibility of a clawback, and any change to scope or timing needs a formal variation.

Many grants are assessable income. The ATO looks at the substance and purpose of the payment: operating grants are usually assessable, capital grants may differ, and timing depends on your cash or accruals basis. For GST, what matters is whether the grant pays for a supply. If you provide goods or services in return, GST may apply and has to be remitted; if it is financial assistance with nothing supplied back, GST may not apply, though you can still claim input tax credits.

In the accounts, for-profit entities follow AASB 120: grants related to income are recognised over the periods in which the related expenses are incurred. Grants related to assets are either deducted from the asset's carrying amount, which lowers the depreciable base, or held as deferred income and released over the asset's useful life. Not-for-profits apply AASB 1058 and AASB 15 instead, recognising income as enforceable performance obligations are satisfied. Pick one policy, apply it consistently and disclose any unmet conditions.

Keep a dedicated grant folder: the agreement and any variations, invoices, purchase orders, payroll records, timesheets, board minutes, bank reconciliations and evidence of co-contributions. Acquittal reports usually combine a narrative on outcomes, a financial reconciliation and certified eligible expenditure, submitted on time in the required format.

Falling short can mean repaying the grant, interest and penalties, remedial orders and a poorer reputation with funders. The common traps are misclassifying a grant as capital or revenue, poor timesheets and invoices, overspending or claiming ineligible costs, ignoring GST and weak procurement records. Where a co-contribution or the gap between milestone payments strains cashflow, a working capital loan or other business finance can bridge it.