What’s emerging? Concessional FBT for employer-provided COVID-19 testing
8 February 2022
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On Monday 7 February 2022, the Federal Treasurer, Josh Frydenberg, announced in a speech to the Australian Industry Group that Covid-19 testing expenses will be tax deductible for employees testing to attend a place of work. This announcement was followed by a Media Release from the Assistant Treasurer, confirming the intention to legislate these measures, including clarifying that the measures will also apply where the individual has the option to work remotely.
The announcement follows the increasing presence of Rapid Antigen Testing (RAT) programs among Australian businesses, whereby an employee is encouraged to take a Covid-19 self-test and present evidence of a negative test result before entering the physical workplace.
Per the media release, the following measures are intended to apply from 1 July 2021 (for income tax purposes) and 1 April 2021 (for Fringe Benefits Tax (FBT) purposes):
Covid-19 testing expenses (including RATs) will be tax deductible to an individual who uses the test to attend a place of work (i.e. the test is taken before attending a physical workplace) or has the option to work remotely; and
The provision of Covid-19 tests (including RATs) by employers to employees for work-related purposes will not be subject to FBT.
This is not confined to employees in one specific industry, but will rather extend to the entire Australian workforce. Additionally, the new measures proposed relate to all Covid-19 testing expenses; however, the focus of employers will likely be the provision of RATs to employees.
What does this mean for employers?
Once legislated, employers who provide RATs to employees as part of their Testing Programs will benefit from FBT concessions, likely through the ‘otherwise deductible rule’. By applying this rule, an employer can reduce the taxable value of a RAT by the amount that an employee would be able to claim as an income tax deduction.
Effectively, businesses will not be liable to pay FBT where RATs are provided to employees for work-related purposes. An employer will accordingly see an estimated reduction of approximately $20 in FBT liability for every dual-pack of RATs (valued at approximately $20 each) provided to an employee (i.e. compared to instances where the RATs would alternatively have been FBT taxable).
This announcement provides much needed certainty and equity on the tax treatment of Covid-19 tests for all employees and employers.
Prior to the Treasurer’s announcement on the 7th February, the ATO was of the view that employer-provided Covid-19 tests only afforded FBT relief under limited circumstances, such as:
An individual could claim the cost of a Covid-19 test as a work-related travel expense if the individual was required to test prior to entering a specific state/jurisdiction for work purposes; or
An FBT exemption applied to the Covid-19 tests where the test was carried out by, or on behalf of, a legally qualified medical practitioner (and other relevant exemption criteria were met) - which is not appropriate in the matter of self-tests - or provided on an infrequent and irregular basis (i.e. a minor benefit).
These limitations meant that employees could not claim a tax deduction for testing expenses incurred to attend their regular place of work, and businesses were potentially liable for FBT on RATs provided to employees for at-home use.
With these new measures announced, there is a greater incentive for individuals to regularly test for Covid-19, particularly prior to attending workplaces, and for businesses to offer a means by which an employee has access to a test.
Nonetheless, it is important to note that, while announced, these changes are yet to be enacted and therefore it is prudent for employers who provide COVID-19 tests for work purposes to maintain appropriate supporting records.
