Since the Omicron variant arrived in Australia in late 2021, the recommended test for detecting COVID has been the Rapid Antigen Test (RAT). For many employees, 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 and employees - often at high prices.
Are tests tax deductible to an employer?
Yes, they are tax deductible. This is great news.
The Assistant Treasurer recently announced that COVID-19 tests (including Polymerase Chain Reaction (PCR) and Rapid Antigen Tests (RATs)) are now tax deductible 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.
Is providing a test to an employee a Fringe benefit?
No, they are not subject to FBT. This is more great news.
Previously there was uncertainty around how they were to be treated. It's great to see that this has been simplified.
GST on RATs
There has been some controversy around GST being applied to the price of RATs. As a medical-related item, it was expected that they are exempt from GST.
As it stands currently, the price of RATs includes GST like most other business expenses. Make sure that you claim the GST in your accounting system.
Always refer to the tax invoice when claiming expenses to ensure you are not missing out on claiming any GST.
What about the deductibility of RATs for employees who purchase their own?
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 as with any other tax deduction). If the RAT cost $30, an individual on a marginal tax rate of 37% would enjoy a tax deduction of $7.40.
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.
Where to from here
Check your accounting system to ensure that you’re correctly claiming the cost of providing testing to employees, whilst being aware of the GST specified on the invoice.
If you are incurring large costs, it may be worth tracking this expense in a separate account on your Profit and Loss.
If you are unsure about what you can and cannot claim when it comes to COVID-19 related costs, reach out to LINK Advisors for advice curated specifically for you and your business.