Updated IN 59 on Tax Treatment of Government Grants

If your clients receive government funding—whether in cash, kind, or as reimbursements—on 25 March 2025 SARS published an updated Interpretation Note 59 (Issue 3) Tax treatment of the receipt or accrual of government grants to clarify how these grants should be treated for tax purposes.

💡 What Does This Mean?

SARS has simplified how government grants must be declared and treated in tax returns. In short:

• All government grants are included in gross income, whether or not they’re capital in nature

• Some grants may be exempt from tax under section 12P or section 10, depending on how they’re listed or approved

• Special rules apply for PPP (Public-Private Partnership) projects and grants in kind (non-cash)

🧾 What You Should Watch For

1. Grants are generally taxable unless specifically exempted
   If the grant is not listed in the Eleventh Schedule or approved by the Minister in the Government Gazette, it’s taxable—even if it’s used for capital projects.

2. Exempt grants can still affect deductions
   Even if a grant is tax-free, it could reduce the value of deductions or allowances (e.g. under sections 11 or 12C), to avoid what SARS calls “double dipping”.

3. Recoupment rules apply
   If a grant-funded asset is later sold or scrapped, recoupment under section 8(4)(a) or a capital gain may apply.

4. Grants in kind (like free equipment or infrastructure)
   These are valued at market price and included in income unless specifically exempt.

🧠 Practical Tips

• Always check if a grant is listed or gazetted for exemption under section 12P

• If your client receives a grant, track how it is used: for assets, operating expenses, or stock? Each has different implications

• Apply section 24C where grants are received upfront for future costs

• Understand the limitation rules: if a grant covers part of an asset, the tax deduction can’t exceed what your client paid out-of-pocket.