[Question] Taxation of Economic Development Grant

[J7J]

Hi,

How will an Economic Development grant received from another entity be treated for tax?

Ie. An entity qualifies as a BEE business and another entity (non related entity) grants R331,000 to this BEE entity. The R331,000 is split as R160k as grant and R171k as loan to be repaid to grantor.

Please help :-)

[Dave A]

What is the business of the granting entity?

[J7J]

Hi Dave,

The grantor is in the business of stocking, processing and distributing steel.

The beneficiary is in the business of pallet making and also makes bricks.

[Dave A]

So the business of giving or receiving grants is not part of their core business then.

[J7J]

No. The grantor accumulates BEE points for this investment in the beneficiary...

[geraldenek]

how is the grant going to be utilized?

[J7J]

how is the grant going to be utilized?

The R160k grant: R80k Raw Materials, R5k Admin, R5k Training, R70k Business Coaching

The R171k loan: R50k Production overheads, R100k Machinery, R21k Equipment

[geraldenek]

The grant received is normal income and taxed as normal. Because this is not a government grant no exclusions apply. And the company is not a NPO and it is not used for research and development.


They are not going to use it for learnership agreements as defined in tax?

[J7J]

They are not going to use it for learnership agreements as defined in tax?

Mmmm... meaning that they will be training someone under their supervision?

[geraldenek]

Mmmm... meaning that they will be training someone under their supervision?

Yes

[J7J]

No, I doubt it.

[Dave A]

Maybe I got this wrong, but I suspect Geraldene was dropping a hint as to a potentially more tax efficient option.