Business Owners – be warned, handing out Rapid Antigen Tests to employees is a great way to help keep your workplace safe but doing so can also trigger tax ramifications that employers need to be aware of and how business owners can claim covid tests.
The Omicron variant of COVID-19 has caused businesses to spend the first few months of 2022 adjusting to a new norm in which they’re required to balance the importance of safeguarding team member health while transitioning back into the workplace.
The access to Rapid Antigen Tests (RATs) has allowed businesses to help actively monitor and reduce the spread of the virus.
Initially, given their soaring demand and limited supply, the biggest challenge in doing so was obtaining a RAT, but as supply improves, accounting and tax experts have warned there may be tax implications associated with their use by businesses.
Despite the clear benefits of distributing free RATs to employees, employers need to be aware of the ramifications doing so can have on their Fringe Benefits Tax obligations.
What is Fringe Benefits Tax?
Aside from offering a salary and superannuation to your employees, there are often instances when employers include non-monetary benefits in an employee’s remuneration package.
Examples of such benefits may include access to a car, a home office setup, gym memberships, and so on. These are referred to in Australian taxation law as “Fringe Benefits’.
When a business includes a fringe benefit in an employee’s package, the Australian Tax Office (ATO) generally requires for the employer to pay a Fringe Benefits Tax (FBT) on these benefits.
FBT is calculated differently and separately to income tax and works within a framework that has its own 12-month reporting period (1 April to 31 March each year).
The ATO’s view on COVID-19 testing and FBT throughout the pandemic, the ATO has been releasing ongoing guidance about its views on how FBT impacts COVID-19 related expenses.
When it comes to offering COVID-19 testing options to employees for free, the ATO allows for an exemption from FBT if both of the following two conditions are met:
The tests are administered by a medical or health care practitioner, and the tests are offered to all employees equally.
The ATO also flags the ‘minor benefits exemption’, which removes any FBT obligations on benefits that are provided irregularly and whose cumulative value over the course of the FBT year is less than $300.
Where do RATs fit in?
Given that the nature of RATs is that they are self-administered, the provision of these testing kits to employees would fail condition one outlined above and would therefore be ineligible for an exemption.
When considering FBT and GST, the grossed-up cost of a RAT that costs $25 potentially goes up to $52.
Notwithstanding the above, it is important to keep in mind that the ATO’s guidance on this matter was last updated in mid-December, a phase during which the results of PCR tests were the only results recognised as accurate by the Australian Government.
Since then, the Government has taken the stance that the results of RATs can be considered just as accurate as those produced by a PCR test. This being the case, it’s important to keep an eye on the ATO’s guidance – especially as the end of the FBT year approaches.
RATs are tax deductible for employers and employees alike
While at this stage RATs are non-exempt from FBT, if an employer purchases them for their employees for work related matters, they can be considered business expenses and are therefore tax deductible.
So even if the ultimate position of the ATO is that RATs are to remain non-exempt from FBT, their tax deductibility should certainly be considered when the business prepares its income tax return at the end of the financial year.
Additionally, if an employee purchases as RAT for the purpose of attending the workplace or travelling for work, if the employer does not cover these costs, the testing kit would be a deductible expense for the employee themselves. If you would like further clarification contact us today by sending us an email, or via phoning on 03 9888 3175. We have also provided information if you can claim personal tax deduction from covid tests.