The government has proposed to make COVID-19 tests, both rapid antigen and polymerase chain reaction tests, tax deductible for individuals where they are purchased for a work-related purpose. It has also proposed to make the costs of these tests exempt from FBT for businesses. However, given that there are very few sitting sessions of Parliament left before the Federal election has to be called, there is uncertainty as to whether this proposal will be law. In the interim, the ATO recommends individuals and businesses keep a record of their expenses.
After the recent furore over the non-existent supply of rapid antigen tests (RATs) and the reduced availability of Polymerase Chain Reaction (PCR) tests at many testing sites, the government is hoping for some good press with the announcement that they will legislate to make both PCR tests and RATs tax deductible where they are purchased for a work-related purpose.
“This action recognises that COVID‑19 tests are an important tool for mitigating transmission risks and absences from the workplace.” – The Hon Michael Sukkar MP, Assistant Treasurer
According to the government, deductibility of tests will take effect from the beginning of the 2021-22 tax year (ie starting 1 July 2021) and will be ongoing. Individuals will also be able to deduct the cost of the test regardless of whether they are required to attend the workplace or has the option to work remotely.
How individuals will benefit from this proposal depends on their individual tax rate. As a simple example, assuming that there are 249 working days in a year and that each RAT costs $20, if an employee was required to take a RAT every day that they work, the total cost over the year would be $4,980. If that employee makes the minimum wage rate of $20.33 per hour and works 7.5 hours each day then their yearly before tax income would be $37,966.
Based on that before tax income, the individual would usually have to pay around $3,755 in tax. If the deduction for the COVID-19 test was included, it reduces the tax paid to $2,809. A tax saving of $946 to the individual. However, given that the initial outlay for the entire year was close to five thousand dollars, it certainly won’t have the same monetary effect as giving essential and hospitality workers free tests.
For businesses that are able to obtain enough RATs for their workforce, the government has also proposed that COVID-19 tests provided by employers to employees will be exempt from FBT, if they are used for work-related purposes. This essentially means that the tests will be excluded from the definition of a fringe benefit and employers do not have to pay FBT on the costs of the tests given to employees in a work-related context.
With the Federal election fast creeping up, there are very few Parliamentary sitting sessions left where this proposal can be introduced and passed, especially given the lack of timeframes provided and the myriad of previous election promises yet to be legislated. A possible change in government may mean that this proposal remains just that, a proposal. There is uncertainty as to whether a Labor government would champion this measure, in particular due to their election pledge of providing free RATs to all Australians through Medicare.
With all this in the background, the ATO has not provided any detailed advice or guidance on the practical aspects of this proposal. It notes that as these measures are not yet law, in the interim, it is recommended that individuals and/or businesses that have incurred expenses for COVID-19 tests should keep a record of the expenses (ie receipts or other documentary evidence of purchase), should they be able to deduct it in the future.
If you would like to stay in the loop and know when the latest development in tax happens, contact us today. We will keep you and your business updated so you don’t miss out. If your business needs help with costs of RATs for your employees and is based in NSW, don’t forget you can apply small business fees and charges rebate.