COVID-19 vaccination rewards: tax implications

Amidst the Omicron COVID-19 wave and with our governments shortening booster dose intervals, many businesses are encouraging their employees and customers to get either vaccinated or get their booster dose by offering rewards or incentives. While this is an effective way to help employees and customers stay safe and businesses to stay open, it’s important to consider that there may be some tax consequences involved. Ordinarily, non-cash benefits provided to the general public are not subject to FBT, while non-cash benefits provided exclusively to employees may be, and cash payments to employees need to be reported through Single Touch Payroll (STP).

Non-cash benefits provided to the general public

Where businesses provide free or discounted goods, services, vouchers, gift cards, rewards points or other non-cash benefits (for example, entries into a draw to win prizes) to everyone who has had their COVID-19 vaccinations, those benefits will not be subject to FBT, even if employees take part in the program. This is because the benefit is not provided in respect of the employee’s employment. “Public” in this case denotes both members of the public in general, and those who make up a more specific section of the public (for example, all members of a particular club).

Non-cash benefits provided to employees

Providing non-cash benefits specifically to employees, such as goods and services, vouchers and gift cards or points in a rewards scheme may be subject to FBT. However, a benefit that has a value of less than $300 may qualify for a minor benefits exemption provided that:

• the benefit is provided infrequently and irregularly;
• the value and total value of the minor benefit and other similar or identical benefits are low;
• it is difficult to calculate the taxable value of the benefit and any associated benefits; and
• the benefit is provided as a result of an unexpected event.

In the event that the non-cash benefit provided to employees does not qualify for the minor benefit exemption, the business may be entitled to a reduction in taxable value of FBT if the benefit is an in-house benefit. Generally, an in-house benefit is one that is identical or similar to the benefits provided to customers in the ordinary course of business (for example, clothes provided by a clothing retailer, or electronics provided by an electronic retailer). Businesses can reduce the aggregate taxable value of these benefits by $1,000 if the benefits are not provided under a salary packaging arrangement.

Where a business provides transport or pays for an employee’s transport to get their COVID-19 vaccination or booster, the travel would be considered work-related preventative health care, and is therefore exempt from FBT.

For businesses that offer their employees entry into a draw to win prizes as a reward for vaccination, there will be no FBT consequences when the entry to the draw is given to the employee; however, FBT may apply when the winner receives their prize, unless an exemption or reduction applies.

Cash payments

Where a business gives its employees a cash payment for getting vaccinated, the business will need to report the payment via Single Touch Payroll (STP) as part of each employee’s salary or wages, withhold tax from the amount under PAYG withholding, and include the amount in each employee’s ordinary time earnings for the purposes of determining super contributions for the employees.

Businesses that have already made cash payments to their employees and have inadvertently failed to withhold tax should make contact with the ATO as soon as practicable to facilitate the possible remission of any failure-to-withhold penalties. In addition, the ATO reminds businesses that super contributions on cash payments should be made no later than 28 days after the end of the quarter in which the payment was made, otherwise the super guarantee charge may apply.

Source: www.ato.gov.au/law/view/document?DocID=AFS/VACC_INC-COVID-19 
www.ato.gov.au/General/COVID-19/Support-for-businesses-and-employers/COVID-19-and-fringe-benefits-tax/ 
www.ato.gov.au/General/COVID-19/Support-for-individuals-and-employees/COVID-19-vaccination-incentives-and-rewards-for-employees/