28TH JANUARY, 2022
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.
The advent of the Omicron variant of COVID-19 caused businesses to spend the first few weeks of 2022 adjusting to a new norm in which they’re required to balance the importance of safeguarding employee health while transitioning back into the workplace.
In addition to high vaccination rates and digital vaccine certificates, 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 has been 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.
Catch up on FBT: What is Fringe Benefits Tax?
Aside from offering a salary and superannuation, there are often instances when employers include non-monetary benefits in an employee’s remuneration package.
Examples of such benefits can 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 an 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 the 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.
As published by AFR, 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 Polymerise Chain Reaction (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 – which has led advocacy organisations like the AI Group to call on the Morrison Government to clarify its stance on the matter.
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, Accountants Daily highlights that, 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 company prepares its income tax return at the end of its 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.
Keep an eye on the guidance and seek expert advice
As mentioned earlier, staying across the ATO’s guidance is important, as the goal posts can often shift during these times of constant change.
To make things easier for taxpayers, the ATO has specific guidance on its website for COVID-19 tax matters, and even has a separate section discussing the various ways in which FBT and COVID-19 continue to interact.
It’s also very important to seek expert advice on all tax-related matters.
FBT and income tax calculations can be very complex, and as seen in the case of RATs, the rules and exemptions can be very nuanced, so always consider consulting a professional before making any tax-related decisions.