FBT, COVID-19 tests and the otherwise deductible rule
Be aware of the rules and exemptions regarding COVID-19 testing
Whilst FBT obligations do exist, there are exemptions and deductions that can be granted when providing COVID-19 tests to employees
You may have to pay Fringe benefits tax (FBT) if you:
- provide your employees or their family members with COVID-19 tests such as a rapid antigen test, or
- pay for a polymerase chain reaction test.
However, the otherwise deductible rule (or a different concession or exemption) may apply to eliminate or reduce any FBT payable.
Types of benefits that may arise from providing COVID-19 tests
Different types of benefits may arise for FBT purposes when you provide, or pay for, your employees’ or their family members’ COVID-19 tests.
The types of benefit that may arise under the FBT law are:
- an expense payment benefit – where you pay for, or reimburse, an employee’s or their family member’s, COVID-19 test.
- a property benefit – where you purchase the COVID-19 tests and give them to your employees or their family members for free or at a discount.
- a residual benefit – where you provide your employees or their family members with a COVID-19 test that isn’t an expense payment or property benefit.
Exemptions from FBT
Some benefits are exempt from FBT. If an exemption applies, you won’t need to:
- pay FBT for providing the COVID-19 tests to your employees, or reimbursing them for their cost
- consider whether the otherwise deductible rule applies.
Work-related medical screening
Work-related medical screening tests are exempt from FBT if both of the following apply:
- testing is carried out by, or on behalf of, 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 if they are offered to all employees.
If the tests you provide or reimburse do not meet these requirements, you may need to pay FBT unless the minor benefits exemption or ‘otherwise deductible rule’ apply.
Minor benefits exemption
This exemption will only apply if:
- the tests are provided infrequently and irregularly
- the cumulative value of the tests provided to an employee during the FBT year is less than $300.
The otherwise deductible rule
You can reduce the taxable value of an expense payment, property or residual fringe benefit by what’s known as the otherwise deductible rule.
This is the amount your employee would have been entitled to claim as a once-only income tax deduction if they had provided or paid for the COVID-19 test themselves.
There are special records that must be kept for the otherwise deductible rule to apply.
When the otherwise deductible rule applies to COVID-19 testing
From 1 July 2021, if an employee paid for a COVID-19 test for a work-related purpose they could have claimed a deduction if certain conditions were met.
To have claimed a deduction for the cost incurred to buy or pay for a COVID-19 test, your employee must have:
- used the test for a work-related purpose, such as to determine if they can attend or remain at work
- received a qualifying COVID-19 test, such as a
- polymerase chain reaction (PCR) test through a private clinic
- other tests in the Australian Register of Therapeutic Goods, including rapid antigen test (RAT) kits
The otherwise deductible rule only applies to the extent that your employee could have claimed the work-related portion of the expenditure on COVID-19 tests as an income tax deduction. For example, if you buy a multipack of COVID-19 tests and allow your employee to use some for private purposes (such as by other family members or for leisure activities), the otherwise deductible rule only applies to the portion of the expense, property or residual benefit used for a work-related purpose.
For the otherwise deductible rule to apply, you must have the appropriate records, including the relevant declaration(s).
When the otherwise deductible rule doesn’t apply
The otherwise deductible rule doesn’t apply:
- to COVID-19 tests you provide if
- your employee uses the test for private purposes – for example, to test their children before they return to school or daycare
- your employee works from home and doesn’t intend to attend the workplace, or
- you haven’t received the declarations that are required under the FBT law
- to any travel or parking expenses you pay or reimburse your employees to get their COVID-19 test. This is because these expenses do not have a sufficient connection to your employee obtaining or undergoing a COVID-19 test to be regarded as being incurred in respect of testing them for COVID-19.
Keeping records for COVID-19 tests
To apply the otherwise deductible rule, you must keep records, including:
- a record of the costs of COVID-19 tests you pay for your employees (including those you reimburse them for) and the dates you paid for them. This may include a receipt or invoice.
- a completed appropriate employer declaration or employee declaration.