Ricochet News

Getting the most out of government

Jun 22, 2018
Getting the most out of government

There are many ways in which the government assists businesses. The most effective means in terms of taxation is by the provision of government grants.

When a taxpayer receives a grant from the government, provided that certain requirements are met, it is exempt from taxation. This means that the full amount received may be used for the purpose for which it was given.

It would be a good idea to search for government grants that are available; these can be a useful tax-free source of income for your business. Note, however, that not all government grants are exempt from taxation.

The Income Tax Act lists the grants that are exempt from taxation. Examples of these are as follows:

  1. Automotive Investment Scheme received from the Department of Trade and Industry;
  2. Export Marketing and Investment Assistance received from the Department of Trade and Industry; and
  3. Jobs Fund received from the National Treasury.

The full list provided comprises some 33 grants from various government departments including the Department of Human Settlements, the Department of Science and Technology and the Department of Energy amongst others. If the government grant is not listed in the Income Tax Act and has not been identified by the Minister of Finance in the Government Gazette, then it may be subject to taxation.

It is worth looking at the Export Marketing and Investment Assistance grant in more detail. This grant provides the taxpayer with assistance in developing export markets by providing a grant for exhibiting products at recognised exhibitions in foreign countries and for developing new export markets in a foreign country.

A taxpayer may, therefore, receive a tax-free grant that will pay for economy class airfares, a subsistence allowance and the transportation of samples.

This grant is open to South African manufacturers that export their products and certain South African export trading houses. Please note that the business must have operated for more than one financial year in order to qualify for this grant (amongst other requirements).

If your company has received a grant that is not from the government, then different considerations will apply. If the grant received is not specifically exempted from taxation (certain private grants will be exempted from tax) then the purpose of the grant money and how it is utilised will determine the manner in which the grant is taxed.

For example, if a private grant is received for assisting with the day to day operations of a business then it will be taxable. However, if the grant is given for the purpose of helping to produce a sustainable business i.e. it adds to the income earning structure of the business and creates an enduring benefit, then it should not be subject to taxation.

Please note that this article does not cover all the tax implications of receiving a grant.

Mazars Port Elizabeth are here to help you should you require any assistance in assessing whether you qualify for the above deductions or allowances, or in completing your tax return. For enquiries, please contact our Tax team at PLZ.TaxConsulting@mazars.co.za