RAT and PCR Tests – favourable tax treatment for employers

Finally, some good COVID-19 news (at least on the tax front) for employers!

Ever since the arrival in Australia of the Omicron variant in late 2021, the recommended test for detecting COVID has been the rapid antigen test (RAT). Indeed, for some employees, returning a negative RAT has been an ongoing condition of returning to work. As a result, there has been a massive buy up of these tests by both employers, employees and by others – often at significantly marked up rates. On the tax front, relief is now at hand!

Announcement

In a press release dated 8 February 2022, the Assistant Treasurer announced that COVID-19 tests (including Polymerase Chain Reaction (PCR) and Rapid Antigen Tests (RATs)) are now tax deductible, and exempt from FBT for employers, where they are purchased for work-related purposes. This will apply both when an individual is required to attend the workplace or has the option to work remotely.

Current law

The new law is aimed at clearing up the confusion which exists created in part by the government claiming for some time that the tests were deductible, despite it being doubtful under the current income tax rules at least as they relate to individuals.  

The new law will also clarify the existing doubt under the current FBT law. Currently, to not pay FBT employers would need to rely on one of the following:

a.              the work-related health care exemption (s58M FBTAA – however this requires the test to be carried out by a legally qualified medical practitioner or nurse), or 

b.              the minor benefit exemption (s58P, FBTAA – the ATO have clearly stated on their website the exemption will only apply if the tests are provided infrequently and irregularly, and the cumulative value of the tests is less than $300), or 

c.              the otherwise deductible rule (for example, in relation to employees travelling on work and the test is required by the destination location, or on return to the employee’s home state).  

Draft legislation has not been released at the time of writing this article. It will be interesting to see if pressure is put on the government to extend the exemption to masks and other personal protective equipment which, somewhat inconceivably, remain potentially subject to FBT.

FBT can be a complex area. Talk with your advisor if you are uncertain about what this means for your business. 

Further details

Under the new law if an individual had to purchase RATs to be able to work, they will be able to claim a tax deduction for the cost they incurred from 1 July 2021 (they will also need evidence of the expense). If the RAT cost $30, an individual on a marginal tax rate of 37% would enjoy a tax deduction of $7.40. 

By contrast, if a test was not required for work, for example an individual just had symptoms but was not required by their employer to get a negative test before returning to work, then the cost will presumably not be deductible. 

Employees and employers should retain evidence of their COVID expenses in order to take advantage of these new rules.

Harper Group Pty Ltd – Chartered Accountants Frankston - Ph 9770 1547 

Disclaimer: All information provided in this article is of a general nature only and is not personal financial or investment advice. Also, changes in legislation may occur frequently. We recommend that our formal advice be obtained before acting on the basis of this information.

Please note we at Harper Group Pty Ltd are not licensed to provide financial product advice under the Corporations Act 2001 (Cth) and taxation is only one of the matters that must be considered when making a decision on a financial product, including on whether to make superannuation contributions. You should consider taking advice from the holder of an Australian financial services licence before making a decision on a financial product.