Verified for 2026 Tax Year

GST on Grants & Subsidies

Receiving a government grant? You might have to pay 15% of it straight back to the IRD. Learn the compliance rules for business support funding.

In New Zealand, many business grants and government subsidies are considered "taxable supplies." This means that if you are GST-registered and receive a grant, you are legally required to treat that funding as business income and pay GST on it.

The General Rule

If a grant is paid to a GST-registered person for their business activity, the IRD treats it as being GST inclusive. You must account for 15% GST on the total amount received and return it to Inland Revenue.

What Funding is Taxable?

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Business Support: General Work and Income (MSD) or MBIE business support grants.
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R&D Funding: Regional development grants and research funding (e.g., Callaghan Innovation).
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Local Council: Council sponsorship, arts funding, or local event grants.

Always Check the Letter

Always read your grant approval letter carefully. It should state whether the amount is "plus GST" or "includes GST". If the letter is completely silent on the matter, the IRD legally assumes the payment is GST-inclusive.

Exceptions: When is it NOT Taxable?

Not every payment from the government triggers GST. Key exceptions include:

Wage Subsidies

Payments designed strictly for wages (like the COVID-19 Wage Subsidy) are usually exempt from GST. They are still taxable for income tax, however.

Welfare & Non-Registered

Personal benefit payments to individuals are never subject to GST. Additionally, if your business is simply not GST-registered, you don't pay GST on the grant.

The "Silver Lining" Math

While paying tax on a grant hurts, remember that you can still claim the GST back on the items you buy with that grant money.

Example: A $2,300 Grant

You receive a $2,300 grant from a local council.
The GST portion is $300 (calculated using the 3/23 fraction).
You pay $300 to the IRD, keeping $2,000 for your project.

Later, you spend that $2,000 on taxable business supplies, and you claim the GST back on those expenses.

Frequently Asked Questions

Do I have to pay GST on a government grant in NZ?

Yes, if you are GST-registered and the grant is for your business activity, it is generally considered a taxable supply. You must account for 15% GST on the amount received.

Are wage subsidies subject to GST?

No, most wage subsidies (like those from MSD during COVID) are not subject to GST. However, they are still subject to income tax and are used to pay wages which have PAYE deducted.

Can I claim GST back on expenses paid for with grant money?

Yes. Provided you are GST-registered and the expenses are for your business, you can claim the GST portion back even if the original funds came from a government grant.

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