Work-related COVID-19 tests may be deductible

After the recent furore over the non-existent supply of rapid antigen tests (RATs) and the reduced availability of polymerase chain reaction (PCR) tests at many COVID-19 testing sites, the Federal Government is hoping for some good press with the announcement that it will legislate to make both PCR tests and RATs tax-deductible for individuals who buy them for a work-related purpose.

According to the government’s proposal, deductibility of tests will take effect from the beginning of the 2021–2022 tax year (that is, starting 1 July 2021) and will be ongoing. Individuals will also be able to deduct the cost of a test regardless of whether they are required to attend the workplace or have the option to work remotely.

How people will benefit from this proposal depends on their individual tax rate. As a simple example, assuming that there are 249 working days in a year and that each RAT costs $20, if an employee was required to take a RAT every day that they worked, the total cost over the year would be $4,980. If that employee made the minimum wage rate of $20.33 per hour and worked 7.5 hours each day, then their yearly before tax income would be $37,966.

Based on that before-tax income, the individual would usually have to pay around $3,755 in tax. If the deduction for the COVID-19 tests was included, it would reduce the tax paid to $2,809 – a tax saving of $946 to the individual for the year. However, given that the initial test outlay for the entire year could be close to $5,000, the deduction certainly wouldn’t have the same monetary effect as to providing free tests to essential and hospitality workers.

For businesses that are able to obtain enough RATs for their workforce, the government has also proposed to make COVID-19 tests provided by employers to employees exempt from FBT, if they are used for work-related purposes. This essentially means that the tests would be excluded from the definition of a fringe benefit, and employers would not have to pay FBT on the costs of tests given to their employees in a work-related context.

With the Federal election fast creeping up, there doesn’t seem much time for this proposal to be introduced in Parliament and passed into law, especially given the lack of timeframes provided and the myriad of previous election promises also yet to be legislated. A possible change in government may even mean that this proposal remains just that, or we later see different arrangements altogether. There is uncertainty as to whether a Labor government would champion this specific tax-deductibility measure, in particular due to their election pledge of providing free RATs to all Australians through Medicare.

With all this in the background, the ATO has not provided any detailed advice or guidance on the practical aspects of this proposal. In the interim, it recommends that individuals and/or businesses incurring expenses for COVID-19 tests should keep a record of the expenses (receipts or other documentary evidence of purchase), to make the process straightforward should they become deductible in the future.