2022 FBT Series: FBT and COVID-19 related benefits

2022 FBT Series: FBT and Covid-19 related benefits

20 April 2022

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A number of employers have provided employees with new types of non-cash benefits as a result of COVID-19. We have set out below the corresponding Fringe Benefits Tax (FBT) of common COVID-19 related benefits.

COVID-19 Testing - Rapid Antigen Test (RAT) and Polymerase Chain Reaction (PCR) tests

With new law enacted on 31 March 2022, it is now clear that from 1 July 2021 the provision of any COVID-19 tests (including RATs) by employers to employees for work-related purposes will not be subject to FBT..

• Employers may be able to exempt or reduce the taxable value of providing a COVID-19 test to nil if:

  • the provision of a COVID-19 test qualifies for the "otherwise deductible rule" and the employee provides the employer with an otherwise deductible declaration prior to lodgment of the employer’s FBT return;

  • the provision of a COVID-19 test qualifies for the otherwise deductible rule, is an expense or residual benefit and an employer signs a no private use declaration; or

  • the employee is provided a COVID-19 test infrequently and irregularly, thereby satisfying the minor benefit exemption.

• Employers may be able to exempt PCR tests under the work-related medical screening exemption, where testing is carried out by a legally qualified medical practitioner or nurse and testing is available to all employees.

Hotel quarantine costs

• Based on current ATO guidance, hotel quarantine costs provided to, or paid on behalf of employees for business travel and private travel (i.e. a holiday) will be considered exempt, as they are considered "benefits provided that allow an employee to self isolate or quarantine" and therefore meet the emergency assistance exemption criteria under s58N (FBTAA).

Travel costs if employee is forced to isolate or quarantine due to being a close contact or contracting COVID-19 whilst travelling on business

• Based on current ATO guidance, additional accommodation, food costs and quarantine costs whilst travelling on business would be considered emergency assistance as it is a benefit that allows an employee to self-isolate or quarantine. As such, these costs will be exempt from FBT.

• Transport costs (i.e. flights, taxis, etc) would be reduced to nil under the “otherwise deductible” rule, in line with the principles set out in TR 2021/1 - Income tax: when are deductions allowed for employees' transport expenses?

• Where an employer pays for travel insurance for a business trip, the otherwise deductible rule may be used to reduce the taxable value to nil. For travel insurance provided for private trips, the insurance will be subject to FBT, unless the minor benefit exemption criteria is met.

Takeaway and Home Delivery Food

• The ATO has published guidance on this subject but limited to non-for-profit (NFP) salary packaging, however we expect the same view to be held for all employers.

• Takeaway and home delivery will constitute meal entertainment while restaurants and public venues were required to be closed for dine-in service due to a COVID-19 state public health order. Where this is not the case, takeaway and home delivery are unlikely to be considered meal entertainment and would need to be valued as either an expense, property or residual fringe benefit. More specifically, the 50/50 or 12-week methods will not be available for such items, however the minor benefit exemption may be.

Car Parking

• If, on a particular day, the office or workplace is closed due to COVID-19 and, therefore, the work car park is also closed, you will not have provided a car-parking fringe benefit if employees do not have access to the car space.

• If all commercial parking stations within a 1km radius of the business are closed due to COVID-19, there will be no car-parking benefits provided.

• If, on 1 April 2021, the lowest fee charged by all of the commercial parking stations within a one kilometre radius of your business premises for all-day parking was less than $9.25, you will not have a car parking fringe benefit for the FBT year. For example, this may occur where all of the commercial parking stations have discounted their all-day parking rate due to COVID-19.
  
  However, the reduced fee must not be substantially greater or less than the average of the lowest fee charged by a commercial parking station operator in the four weeks prior to 1 April 2021 or the four weeks after 1 April 2021. The reduced fee is disregarded for the purpose of determining the lowest fee charged by a nearby commercial parking station if it does not meet this requirement.

Non-Cash Vaccination Incentive

• Employers need to consider the FBT consequences of providing non-cash benefits such as goods and services, vouchers and gift cards, or points in a reward scheme, as an incentive for their employees to get vaccinated. For such benefits, consideration should be given as to whether the minor benefit exemption would be available.

• Travel expenses incurred by an employer for an employee’s transport to get vaccinated is exempt under the work-related preventative health care exemption (s58M of the FBTAA). 

Cash payment for getting the vaccine

• When employees are provided with a cash payment or paid leave to get their COVID-19 vaccination and/or to recover from any side effects, the payment is considered salary or wages. As such, employers are required to withhold Pay-As-You-Go and likely contribute Superannuation Guarantee on the amounts.