Not every dollar counts. Here's what grants will actually pay for.

The short answer: eligible costs (often called eligible expenditure) are the costs a grant is allowed to pay for, as defined in the program guidelines. They usually need to be a direct cost of your project, incurred within the project period and on the program's list of allowed items. Everything else is an excluded cost: it can still be part of your project, but you pay for it yourself.

Most first-time applicants assume a grant will cover "the project". Usually it covers part of it. Knowing which costs count, before you write your budget, saves a lot of rework and a few nasty surprises later.

1. What "eligible costs" means

Every grant program sets out what its money can be spent on. The guidelines usually have a section called "eligible expenditure" or "eligible activities", and often a matching list of ineligible expenditure. Those two lists decide your budget, not what feels reasonable for the project.

The funder also has the final say. The federal Industry Growth Program guidelines, for example, state that "not all expenditure on your project may be eligible for grant funding", and that the program's delegate makes the final decision.

2. The tests a cost usually has to pass

Wording varies between programs, but most guidelines apply a similar set of tests. The Industry Growth Program's version is a good model. To be eligible, a cost must:

• be incurred by you within the project period
• be a direct cost of the project
• not be provided for the benefit or profit of related bodies
• meet that program's eligible expenditure rules.

If a cost fails any one of these tests, assume it's excluded until the funder tells you otherwise.

3. Costs that are often eligible

Depending on the program, these are the kinds of costs that commonly qualify, as long as they're directly for the project:

• Equipment and installation needed to deliver the project
• Contractors and consultants doing defined project work
• Materials and supplies used up by the project
• Staff time spent directly on project activities, in programs that fund labour
• Travel that's needed for the project, usually at reasonable cost

Some programs ask you to group costs under set headings. The Industry Growth Program uses five: labour, contract, capitalised, travel and overseas, and other expenditure. If your guidelines have headings like these, use them in your budget.

Staff time comes with conditions. The same program, for instance, generally doesn't count time from leadership or administrative staff, including business owners and partners, unless it's shown to relate to core project work. Read the labour rules closely if you plan to claim your own time.

4. Costs that are often excluded

Ineligible lists are usually longer than eligible ones. These examples come from the Industry Growth Program's list, and similar items appear in many other programs:

• costs incurred before the funder approves the project
• routine running costs, such as rent, utilities, office supplies and bank charges
• financing costs, including interest
• maintenance, insurance and ongoing software subscriptions not directly tied to the project
• activities already funded from another source, including other government programs
• the cost of preparing the grant application itself

Your program's list will be different, so treat this as a guide to what to look for, not a rule. If a cost isn't clearly on the eligible list, check before you count it.

5. Timing: costs you've already paid

This one catches a lot of people. Many programs only fund costs incurred after your project is approved or your agreement is signed. A deposit you paid last month, or equipment you ordered before applying, may not count, however closely it relates to the project.

Before you sign a quote, pay a deposit or start work, check what the guidelines say about the project start date. If you've already started, read what to do if your project has already started.

6. What about GST?

GST is handled differently from program to program, and it often depends on whether you're registered for GST. Two examples:

• The Industry Growth Program says that if you're registered for GST, it will add GST to your grant payment where applicable.
• Strathbogie Shire Council's grant budget guide says its grants are not subject to GST and the grant amount doesn't include GST unless otherwise stated, with some exceptions.

So check two things in your guidelines: whether budget figures should include or exclude GST, and how GST is treated in payments. If you're unsure, ask the program contact or your accountant. This is general information only, not tax advice.

7. In-kind contributions

An in-kind contribution is non-cash support for your project, such as volunteer time, donated materials or the use of equipment you already own. In-kind contributions usually count towards your share of the project, not towards what the grant pays for, and many programs limit how much they'll accept.

• The Industry Growth Program caps in-kind contributions at 10 per cent of eligible project expenditure.
• Strathbogie Shire Council's guide values general volunteer time at $40 an hour and specialist time, such as a tradesperson's, at $80 an hour.

If your program accepts in-kind contributions, its guidelines should tell you how to value them. Use their method, and keep a record of how you got each figure.

8. How eligible costs set your grant request

Many grants pay a percentage of eligible costs, up to a cap. That makes the eligible total the starting point for your request. Here's how it works in our fictional worked example, where the grant funds 50 per cent of eligible expenditure:

Eligible costs are $24,000, so the grant request is 50% × $24,000 = $12,000. The business needs to fund the other $18,000: its $12,000 share of the eligible costs plus all $6,000 of excluded costs.

Two things to notice. First, the business pays more than half of the $30,000 project, even with a "50 per cent" grant. Second, counting an excluded cost as eligible would inflate the request, and assessors check budgets against the guidelines.

GrantAlly sorts each cost in your budget into eligible, excluded or unresolved against the program's rules, then works through the funding percentage, cap and your contribution, so you can see what you're asking for and what you'll need to fund. See project budgets.

9. When you're not sure

Some costs sit in a grey area: a laptop used partly for the project, a staff member who splits their time, a subscription you'd already pay for. Here's how to handle them:

• Ask the program contact before you spend. Most guidelines list an email or phone number. Write down the answer, who gave it and the date.
• Mark it as unresolved in your working budget until you have an answer, rather than guessing.
• Only claim the project share of anything that's also used for other work, and only if the guidelines allow it.
• Keep every quote, invoice and receipt. The Industry Growth Program warns that if you can't provide payment records when asked, "the expense may not qualify as eligible expenditure".

Before you finalise your budget

• Every cost is on the program's eligible list, or confirmed in writing by the funder.
• No cost was incurred before the allowed start date.
• Excluded costs are shown separately and you know how you'll pay for them.
• GST is treated the way the guidelines ask.
• In-kind contributions are within any cap and valued using the funder's method.
• The request matches the funding percentage and stays under the cap.
• Every cost in the budget is explained somewhere in your answers, and the other way round.

Frequently asked questions

Can a grant pay for my own wages?

Sometimes. Programs that fund labour usually cover time spent directly on project work, and some exclude business owners, partners and administrative roles unless that time is clearly core project work. Check the labour rules in your guidelines.

Can I claim costs I've already paid?

Often not. Many programs only fund costs incurred after the project is approved or the agreement is signed. Check the project start rules before you pay a deposit or place an order.

Is the cost of preparing my application an eligible cost?

Usually not. Many programs list application preparation as ineligible expenditure. Check your program's ineligible list.

Should my grant budget include GST?

It depends on the program and on whether you're registered for GST. Follow what the guidelines ask, and check with the program contact or your accountant if it's not clear.