Didn't spend it all? Here's what usually happens to the rest.

The short answer: often, yes. Many grant agreements say that any grant money you haven't spent on the approved project by the end date has to be repaid, or dealt with as the funder directs. But it depends on your funding agreement, and many funders will consider a request to extend the timeframe or use the leftover money another way if you ask before the project ends.

If you've realised you won't spend the whole grant, you're not in trouble and you're far from the only one. Prices drop, plans change and projects come in under budget. What matters is that you read what your agreement says, tell your funder early and keep clear records. Handled that way, an underspend is usually an administrative conversation, not a crisis.

1. Why unspent funds are often repayable

A grant isn't a general gift. It's money given for a specific project, on the terms set out in your funding agreement. The funder approved a budget for particular activities, so money that wasn't needed for those activities usually wasn't earned in the first place.

Public funders also have to account for public money. Wyndham City Council, for example, says acquittals let it account for the use of public funds. Returning an underspend is part of that, and it doesn't mean you did anything wrong.

2. What agreements commonly say

Your agreement is the only thing that settles this for your grant. Here's what some real agreements and guides say, as examples:

• Commonwealth Standard Grant Agreement. The Department of Finance's template says that if any grant amount is spent outside the agreement, or is additional to what the activity needs, the Commonwealth may by written notice require you to repay it, tell you how to deal with it, or deduct it from later payments.
• A business.gov.au sample agreement. A sample grant agreement for the Business Growth Grants program says that grant money spent on activities outside the project, or unspent at the project end date, must be repaid to the Commonwealth.
• Council community grants. Wyndham City Council says unspent grant money will need to be returned, and the council can tell you how. Penrith City Council's acquittal form asks how much is unspent and why, and says a council representative will be in touch about returning it. Knox City Council also requires unspent funds to be returned.

Notice the Commonwealth template says the funder "may" require repayment, and gives it other options. It also lets you propose another use for surplus money, and lists an optional term on rolling over surplus funds. Whether these apply depends on your agreement. Look for headings such as "repayment", "unspent funds", "surplus" or "underspend" in yours.

3. How an underspend can happen: a fictional example

Here's how it might look using the business from our fictional worked example. The grant pays 50 per cent of eligible costs. The equipment was budgeted at $20,000 but came in at $18,000.

If the full $12,000 was paid upfront, the agreement might require the $1,000 difference to be repaid, or the business could ask the funder whether it can be used on something else within the project. If the grant is paid in stages after each report, the funder may reduce the final payment instead. Every agreement handles this differently, so these are possibilities to check, not rules.

4. Money spent on the wrong things

An underspend is one thing. Money spent on items the grant didn't cover is a different and more serious problem, because the funder can treat it as spent outside the agreement. In the Commonwealth template, both situations fall under the same repayment clause.

Common examples include costs from before the start date, everyday running costs, or items outside the approved budget. The Industry Growth Program also warns that if you can't provide payment records when asked, the expense may not qualify as eligible expenditure. In other words, poor records can turn a legitimate cost into one you may have to repay.

If you're unsure whether something counts, check before you spend. Our guide to eligible costs in a grant explains how funders usually draw the line.

5. Asking for more time or a change

If money is unspent because the project is running late, or you've found a better way to reach the same goal, you may be able to change the agreement through a variation.

• The Industry Growth Program lets recipients request a variation to change milestones, extend the timeframe within its maximum project period, or change activities. Requests must be in writing before the project end date, and it says not to assume approval.
• Wyndham City Council asks recipients to complete a project variation form for changes to dates, budget or activities, and to talk to the grants team before making the change.
• The Commonwealth Standard Grant Agreement template lets a grantee propose an alternative use for grant money that's more than the activity needs, as long as it fits the purpose of the grant and the guidelines.

The timing matters. A variation request made before your end date gives the funder room to say yes. Money discovered at acquittal, after the project has closed, usually leaves fewer options.

6. Interest earned on grant money

If your grant sits in a bank account earning interest, check your agreement. Some agreements are silent on this. Others treat interest as part of the grant. The Commonwealth Standard Grant Agreement template, for example, gives agencies an option to say that any interest earned is treated as part of the grant and covered by the agreement's terms.

Where that applies, interest may need to be spent on the project or returned with any unspent grant. If your agreement doesn't mention interest, ask your grant manager. For how grant income is treated for tax, talk to a registered tax agent or check with the ATO.

7. Talk to your grant manager early

The single most useful thing you can do is raise an underspend as soon as you see it coming. Grant managers deal with this often, and would rather hear early than at the end.

• Raise it before the end date, while a variation is still possible.
• Explain why the money wasn't spent: lower prices, a delay, a change in scope.
• Come with an option, such as a short extension or a related project activity, but be ready to repay if that's what the agreement requires.
• Get the answer in writing and keep it with your grant records.

GrantAlly's award workspace tracks spending against your approved budget as the project runs, and sends email reminders before milestones and reports are due, so an underspend shows up while there's still time to talk to the funder. You check and submit every report yourself. See how reporting works.

8. If you do have to repay

Usually the funder will tell you the amount, how to pay it and by when, often after your acquittal is assessed. Wyndham and Penrith both say they'll contact you with instructions. A few things to know:

• Report the underspend honestly in your acquittal. Many forms ask for it directly. The Industry Growth Program's end of project report, for example, must report on any underspends.
• Pay within the time given. Under the Commonwealth Standard Grant Agreement template, interest can be charged on amounts still unpaid after the notice period, and the amount can be recovered as a debt.
• Keep your records. Funders can ask for records after the project ends. The Commonwealth template includes an option to keep them for 5 years after the activity finishes.
• Protect your next application. Councils such as Knox, Wyndham and Penrith say an outstanding acquittal can stop you getting future grants from them, so close things out properly.

Repaying a small underspend promptly, with a clear explanation, is a normal part of grant administration. For how to put the final report together, see our guide on how to do a grant acquittal.

Frequently asked questions

Can I keep unspent grant money if the project was a success?

Usually not without the funder's agreement. Many agreements require unspent money to be repaid or used as the funder directs, even if the project met its goals. Ask your grant manager before the end date whether you can use it on a related activity.

Can I spend leftover grant money on something else?

Only if the funder approves it. Some agreements let you propose another use for surplus funds that fits the purpose of the grant, but you'll usually need a written variation before you spend it.

Will I be penalised for an underspend?

An honest underspend that you report clearly is normally treated as an administrative matter: you repay the amount or agree another use. Problems are more likely if money was spent on ineligible items, records are missing or the acquittal is late.

Do I have to give back interest earned on the grant?

It depends on your agreement. Some treat interest as part of the grant, which means it's covered by the same rules as the grant itself. If your agreement doesn't say, ask your grant manager how to handle it.