Guide
Unexpended grants: income, or a liability?
If your corporation has grant money left unspent at year end, the default position is that you recognise it as income now. Carrying it forward is the exception, and whether it applies depends on what your grant agreement actually says.
This is the most common error we see in Aboriginal and Torres Strait Islander corporation accounts, and an easy one to make, because the intuition behind it is so reasonable: the money is not ours until we spend it.
The rule, and where it comes from
Grant income for a not-for-profit is governed by two accounting standards, not by anything ORIC publishes. The Registrar sets what you lodge and when; the Australian Accounting Standards Board sets how the numbers are worked out.
The default: recognise it now
What AASB 1058 says
“Except as set out in paragraphs 15–17, an entity shall recognise income immediately in profit or loss for the excess of the initial carrying amount of an asset over the related amounts recognised in accordance with paragraph 9.”
— AASB 1058, paragraph 10
What that means for your corporation
You received the money. Unless something specific applies, it is income in the year you received it, whether or not you have spent it.
The “related amounts” in paragraph 9 are the exceptions, and the one that matters for most grants is a contract liability under AASB 15. That is the door through which unspent grant money gets carried forward.
The exception: an enforceable agreement with specific obligations
What AASB 1058 says
“On initial recognition of an asset, an entity shall recognise any related contributions by owners, increases in liabilities, decreases in assets, and revenue (‘related amounts’) in accordance with other Australian Accounting Standards. For example, related amounts may take the form of: … revenue or a contract liability arising from a contract with a customer, in accordance with AASB 15…”
— AASB 1058, paragraph 9(b)
What that means for your corporation
If the grant is an enforceable agreement, and it sets out what you have to deliver in terms specific enough that you can tell when you have delivered it, then it falls under AASB 15. You recognise the income as you do the work, and whatever is left over sits on the balance sheet as a contract liability.
If it does not meet both tests, you are back to the default: income now.
Checked against AASB 1058 Income of Not-for-Profit Entities (compiled, applies from 1 Jan 2023), .
Substance, not the label
One line in the standard settles a lot of arguments. It does not matter what the document is called, or that everyone refers to it as a grant.
What AASB 1058 says
“An entity shall apply the requirements of this Standard to each transaction based on the substance of the transaction, rather than its legal form or the description given to it (eg grants or donations), so as to provide a faithful representation of the economic substance of the transaction.”
— AASB 1058, paragraph 6
What that means for your corporation
Read the agreement, not the letterhead. Two documents both titled “grant” can be accounted for completely differently, and a funder calling something a grant does not make it one for accounting purposes.
The three questions to ask
Work through these against the actual agreement, one grant at a time:
- Is it enforceable? Could the funder actually compel you to do what the agreement says, or recover the money if you did not? A letter of support or an informal understanding usually is not.
- Are the obligations specific enough? “Deliver 40 hours of youth programming per quarter” is specific enough to know when it is done. “Support community wellbeing” is not. This is where most grant agreements fail the test.
- Is it a capital grant? Money given specifically so you can acquire or build something (a building, a vehicle, a facility) is dealt with separately, and the general rule above does not apply to it.
Question 1 and question 2 both have to be yes before you defer anything. If either is no, the default in paragraph 10 applies and the money is income in the year you got it.
Why boards should care
This is not a technicality that lives with the bookkeeper. It changes two things a board is directly responsible for.
- What your financial report says about you. Recognising a large unspent grant as income can show a healthy surplus in a year where every dollar of it is already committed to next year’s programme. Members and funders read that surplus and draw conclusions from it.
- Your registered size, and therefore your obligations. Consolidated gross operating income is one of the criteria that sets whether your corporation is small, medium or large, which in turn sets which reports you must lodge and whether you need an audit at all. Getting grant income wrong can put your corporation in the wrong band. See corporation size explained and whether you need an audit.
What to do next
- List every grant with money unspent at year end.
- For each one, find the agreement — the signed document, not the email.
- Run it through the three questions above.
- Write down the answer and why, so that next year you are not doing it again from scratch, and so your auditor can follow your reasoning.
That last step is worth more than it sounds. The corporations that handle this well are the ones with a one-page note per grant, not the ones with the cleverest accountant.
Where we come in
Grant acquittals and grant conditions are what this practice is strongest at, and this question is why. Sorting it out in April is a conversation; sorting it out in December, with a lodgement deadline and an auditor waiting, is a problem. See grant acquittals, or who we are.
To be completed — CONTENT-CHECKLIST §5
Partner sign-off before this page goes live. The standard has been read and quoted verbatim, and the paragraphs above were verified on 15 August 2026 against the compilation applicable to a 30 June 2026 year end. What still needs a partner is the judgement layer: whether the three-question framing matches how Alison actually works a grant agreement, and whether any common funder agreement in this sector deserves a worked example here.
Frequently asked questions
We have grant money left over at 30 June. Do we carry it forward as a liability?
Not automatically, and this is the most common mistake. Under AASB 1058 the default is that you recognise the money as income immediately. Carrying it forward as a liability is the exception, and it applies only where the grant agreement is enforceable and contains performance obligations specific enough that you can tell when you have met them. Many grant agreements do not.
Why does it matter? The cash is the same either way.
Because it changes what your financial report says about the corporation. Recognising the money as income can make a year look like a surplus when the money is already committed to next year’s programme. Deferring it when you should not have understates income — and consolidated gross operating income is what sets your registered size, which sets which reports you have to lodge and whether you need an audit at all.
The funder says we have to give unspent money back. Does that change it?
It can, but not by itself. An obligation to repay unspent money may give rise to a financial liability instead of income. What matters is the substance of the arrangement, not the label on it — AASB 1058 says so directly. This is one to work through with your accountant against the actual agreement.
Does it make a difference if the grant is for a building or a vehicle?
Yes. Grants received specifically to enable a corporation to acquire or construct a recognisable non-financial asset are dealt with separately under AASB 1058 and are not covered by the general rule above. If your grant is a capital grant, treat it as its own question.
Our auditor and our bookkeeper disagree about this. Who is right?
Often both are working from different information. The answer is in the grant agreement, not in general principle, so the way to settle it is to read the agreement against the standard together. If we act for you, that is a conversation we would rather have in April than in December.