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A Guide to Grants, Prizes, and Awards for Creatives in Australia: Taxation, Unearned revenue, and GST Implications
Grants, prizes, and awards play an important role in supporting and recognising the talents and accomplishments of creatives. However, knowing the tax and GST (Goods and Services Tax) implications is critical. In this blog post, we'll look at whether grants, prizes, and awards are taxable and subject to GST in the eyes of the Australian Taxation Office (ATO).
Are Grants Taxable?
Classic answer: it depends.
Generally, grants received by creatives may be subject to tax if they are considered assessable income. The ATO considers various factors when determining the taxability of grants, including the purpose and nature of the grant, as well as the recipient's circumstances. Some key considerations include:
- Income-Producing Activities: Did you receive the grant in relation to your usual business activities? If the grant is received in connection with income-producing activities, such as the sale of artworks or performances, it is likely to be considered assessable income and subject to tax.
- Personal Grants: Grants received for personal purposes, such as living expenses or personal development, are less likely to be considered assessable income. However, specific circumstances and the nature of the grant will determine the tax treatment.
- Artist Grants and Fellowships: Grants specifically designed to support artists, such as artist grants or fellowships, can have different tax implications. Some grants may be considered taxable income, while others may be exempt or subject to specific provisions. Chat to your accountant and provide them copies of any documentation you have or links to info about that grant.
Expenses incurred in relation to producing creative works or activities funded by the grants may be deductible for income tax purposes. It's important to keep appropriate records and consult with a tax professional to ensure eligibility for deductions.
So, if you have a $5,000 grant (assuming it is taxable income), and $4,500 of related deductible expenses, you report all of this, and then the end result of $500 ‘profit’ is what ends up getting taxed. While the grant is taxable, if the grant is spent on deductible expenses, then you end up only paying tax on the portion that is left.
Are Prizes and Awards Taxable?
The tax treatment of prizes and awards varies based on the nature of the award and the circumstances of the recipient. Consider the following:
- Cash Prizes: In most cases, cash prizes are taxable income. If you win a financial prize as a creative individual, you must disclose it as income on your tax return. The prize money will be added to your taxable income and may be subject to income tax at your marginal rate. If there is an element of change/risk (like cash winnings at the casino) then it is more likely not taxable as it is winnings instead.
- Non-Cash prizes: Non-cash prizes, such as goods, coupons, or services, are taxable income as well. Their taxable value is determined by their fair market value at the time they are received. The ATO expects you to record non-cash prizes as income and include it in your tax return.
- Awards and Honorary Payments: Certain awards or honorary payments made to creatives may not be taxable income. This, however, is contingent on the circumstances surrounding the award. If the award is solely honorary and does not contain any significant financial advantage, it may be tax-free. Again, consulting a tax professional is recommended to determine the precise tax treatment in your circumstance.
GST Impact
In Australia, GST is a 10% broad-based tax that applies to the majority of products, services, and other commodities. Grants, prizes, and awards, on the other hand, are normally excluded from GST because they do not constitute a taxable supply. This means that if you get a grant, prize, or award, you may not be required to pay GST on the cash or declare GST on these transactions. It is crucial to remember, however, that this exemption may not apply to goods or services purchased using grant funding. If you use grant money to buy goods or services, GST may apply to those transactions.
How does unearned revenue apply in terms of Grants, Prizes, and Awards?
Unearned income, also known as deferred revenue or advance payments, is the payment received from clients for goods or services that have yet to be delivered or provided. Unearned revenue can occur in the context of grants, prizes, and awards when a creative individual or organization receives a cash award or grant in advance but has not yet completed the obligations associated with it.
Assume a creative artist is awarded a grant to develop a series of artworks for an exhibition. The grant is paid to the artist in advance, but the artworks have yet to be finished and displayed. In this situation, the grant funding received by the artist may be deemed unearned revenue until the artworks were completed, expenses incurred and the grant responsibilities were met.
Businesses and individuals are obligated to account for unearned revenue in their financial statements. Unearned revenue should be reflected on the balance sheet as a liability until the corresponding products or services are supplied or performed. Once the obligations are met, the unearned revenue is recorded in the income statement as revenue. However, it's important to note that the treatment of unearned revenue may vary depending on individual circumstances, accounting methods, and applicable regulations. So, chat to your accountant!
May you be awarded and funded and granted all that you desire!
