As the race to secure supplies of COVID-19 Rapid Antigen Tests (RATs) heats up due to the ongoing wave of Omicron spreading throughout the community, it is important for all SMEs purchasing RATs for employee use to be aware of potentially triggering a Fringe Benefits Tax (FBT) event.
It is ironic that providing the very thing that can give staff the confidence to attend the workplace and more broadly allow businesses to function, comes with this potentially unanticipated cost.
The burden for SME and start-up businesses is perhaps even greater compared to other businesses due to the onerous nature of FBT compliance and the staffing challenges faced by many businesses. Isolation rules surrounding employees testing positive or coming into close contact with the virus have left many SMEs having to manage the burden of being under-resourced.
Many SMEs may never have provided taxable fringe benefits to their employees in the past, making the RAT tax consequences seem daunting and complex to some business owners.
It is apparent that providing RATs to employees for use outside of the workplace (for personal use) is likely to attract FBT.
For tests provided by businesses for use in or prior to attending the workplace, or to meet travel or offsite visit requirements, the ATO’s stated position is that RATs are exempt from FBT as “work-related medical screening” when both of the following apply:
- The test is administered by a legally qualified medical practitioner or nurse; and
- Testing is made available to all employees.
For the second point above, as long as tests are offered to all employees, their provision will not trigger an FBT event irrespective of employees choosing not to take a test.
Given that RATs are self-administered tests and therefore are not conducted by a nurse or doctor, they are likely to attract FBT, unless another FBT exemption can be applied.
Relevant FBT exemptions that should be considered are the Minor Benefits Exemption and the Otherwise Deductible Rule.
For the Minor Benefit Exemption to apply, tests need to be provided on an infrequent and irregular basis and the cumulative value of the tests, per employee, over the course of the FBT year, i.e. 1 April to 31 March, needs to be less than $300.
For the Otherwise Deductible Rule to apply, the supply of RATs would need to be a mandated requirement of the relevant jurisdiction.
SMEs should prepare for an FBT consequence in the current FBT year if they are presently providing tests on a regular basis to key employees as a means of keeping their day-to-day operations functioning, especially if there is an absence of mandatory testing.
On a positive note, tax deductions can be claimed by employers who supply RATs to employees with it being considered an employment-related expense, as it is intended to provide a safe working environment.
However, the subject of deductibility and FBT consequences is likely to be an evolving issue where rules will be adjusted or clarified according to developing circumstances in the coming months.
It is important for businesses to take into consideration when forming their decision to supply RATs to employees that they should expect an FBT consequence at the upcoming end of this FBT year.
Seeking professional taxation advice could bring relief to many SMEs and start-up businesses as advisors will be able to guide them through relevant FBT exemptions while providing an independent perspective on whether continuing to supply RATs is in the best interests of the business.