Most, if not all, State and Territory COVID grants made to small business are non-assessable, non-exempt (NANE) income. But for this to be the case, the requirements in s 59-97 of the ITAA 1997 must be met. These include that the relevant “Minister must, by legislative instrument, declare a grant program to be an eligible program.”

But what are the consequences for the taxpayer who receives such a grant?

This will depend on the nature of the taxpayer entity (eg if it is an individual, company or trust) and, furthermore, how the grant is dealt with by the entity.

Effect of receipt of NANE

As a starting point, the effect for any entity that receives a NANE amount is that it is not assessable income in any way. Further it does not reduce any prior or current year tax losses of the taxpayer – which would, otherwise, be the case if the amount was just “exempt income” (see Div 36 of the ITAA 1997).

In short,  a NANE business grant under s 59-97 will have a totally neutral tax effect in the hands of the recipient.

Distribution of grant to shareholders or beneficiaries

However, in the case of a company or trust that receives a NANE business grant (pursuant to s 59-97) and decides to distribute the amount to shareholders or beneficiaries (as the case may be) then there will be different tax outcomes for the shareholders and beneficiaries (respectively).

In the case of a shareholder, the amount will be an assessable “unfranked dividend” in their hands. This is essentially because any distribution from a company, other than a return of capital, is treated as a “dividend” (under the definition of dividend in s 44 of the ITAA 1936).

On the other hand, the distribution of such a NANE business grant to the beneficiaries of a trust will not be assessable in their hands. This essential because only the distribution of the “net” (or taxable) income of a trust is assessable to presently entitled beneficiaries.


This is something of an anomalous outcome.

And for those who think this outcome is unfair, it should be emphasised that the grants were issued for the purpose of being used in the business run by the company, trust (or individual) to keep it operating – and not as a form of tax-free distributions to owners or stakeholders in the business.

Nevertheless, as has been pointed out, such payments to shareholders and beneficiaries of the relevant entities are often the way small businesses remunerate  persons (usually family members) who work in the business – and that therefore the distribution of the grant can be a valid “business use” of it.

Just remember..

In any event the key is to remember that such grants are NANE in the hands of the recipient which mean they have no tax consequences whatsoever on their receipt by the taxpayer.