Editor’s note: The government has recently announced no FBT applies to COVID-19 testing. The Government announcement will be covered in detail in our March 2022 Update.
Are there FBT implications for COVID-19 testing?
You may require your employees to undertake COVID-19 testing before attending the workplace. Employees may also be required to have COVID-19 tests if they are travelling for work.
Based on our understanding the tests will generally be a polymerase chain reaction (PCR) test, and/or a rapid antigen test (RAT).
Where you provide a test to your employee, or reimburse the cost of a test, you are providing a fringe benefit to your employee. However, there are three possible outcomes that could result in no FBT being payable by.
Work-related medical screening exemption
An exemption from FBT will be available for work-related medical screening where both of the following apply:
- testing is carried out by a legally qualified medical practitioner or nurse, and
- testing is available to all employees.
If only some of your employees get COVID-19 tests, the tests are still exempt as long as they are offered to all employees.
If the tests you provide or reimburse do not meet both, FBT will be payable unless the minor benefits exemption or ‘otherwise deductible rule’ apply.
Minor benefits exemption
This exemption will only apply where the tests are provided infrequently and irregularly, and the minor benefit threshold of less than $300 per employee is not exceeded.
Given the large surges in the Delta & Omicron variant of the COVID-19 virus, it could be the case that an individual employee – depending on the role they perform – may be subjected to several PCR/RAT tests during the course of the FBT year (in fact many employees are required to have daily RAT tests).
Will this satisfy the ‘infrequent & irregular’ requirement of the minor benefit exemption?
Each employer will need to consider the frequency of testing when assessing whether minor benefits exemption will apply. Whilst we expect the ATO would be sympathetic, section 58P does make frequency and regularity conditions of eligibility. Unfortunately extended PCR/RAT testing requirements for employees is likely to jeopardise access to the minor benefit exemption.
COVID-19 testing and the otherwise deductible rule
The otherwise deductible rule may apply to reduce the taxable value of COVID-19 tests that are taken because an employee is travelling on work, and:
- the test is required by the destination jurisdiction or state, and
- for the employee to return to Australia or their home State or Territory.
The ATO take the view that the cost of a COVID-19 test is considered to be an incidental expense where the travel is undertaken in the course of the employee’s employment. On this basis, such costs would be ‘otherwise deductible’ if paid for or reimbursed by their employer. If the employee’s travel is for both work and private purposes, apportionment may be required.
The following example is taken from the ATO’s website:
Example: travel expenses are deductible
Therese is employed as the State manager of a company that operates clothing stores. Each year, the State managers attend an eight day overseas trip to Italy to have meetings with buyers and distributors. Therese decides to attend the meetings. Before entry into Italy and return to Australia, Therese buys two COVID-19 tests as she will need proof of a negative COVID-19 test taken within the last three days. Therese has receipts for the expenses.
As the travel is undertaken in the course of Therese’s employment, the cost she incurs on the COVID-19 tests is incurred in the course of performing her income-producing activities. As such, Therese is travelling on work during the eight day period and can claim a deduction for the cost of the COVID-19 tests.
What does not appear to be confirmed yet by the ATO is whether the provision of COVID-19 testing for employees who are required by their employer to undertake a COVID-19 test before attending work is otherwise deductible.
The concern is the ATO may consider such a requirement a pre-cursor to attending work – akin to the costs of home to work travel – and therefore a ‘preliminary’ cost. Such costs are not deductible on the basis they have been incurred to allow the individual to earn assessable income as opposed to a cost incurred by the individual in the course of deriving assessable income. Further ATO clarification on this point would be desirable. It is noted the Prime Minister has indicated such costs are/ or will be made deductible which may resolve the current uncertainty. Stay tuned!.
It seems apparent from the above that even in the midst of a pandemic, the all encompassing FBT regime can strike. This article has only addressed the FBT implications of COVID-19 testing. In our next newsletter we will address the FBT implications associated with COVID-19 quarantine costs!