Businesses beware: Entering the RAT race could trigger fringe benefit taxes

As the race to secure supplies of COVID-19 rapid antigen tests (RATs) heats up due to the ongoing wave of Omicron throughout the community, it is important for businesses purchasing RATs for employees to be aware of potentially triggering a fringe benefits tax (FBT) event.

While businesses that provide testing kits to employees, or reimburse the cost of tests purchased by employees, are contributing to creating a safe workplace for their teams, they could simultaneously and unintentionally be triggering a FBT problem.

Providing test kits to employees for use outside of the workplace for personal reasons is likely to attract an FBT, but there are some ways around this.

The ATO’s stated position is that tests are exempt from FBT as “work-related medical screening” when both of the following apply:

1. The test is administered by a legally qualified medical practitioner or nurse; and
2. Testing is made available to all employees.

For the second point above, as long as tests are offered to all employees it will not trigger an FBT event, irrespective of employees choosing not to take a test.

FBT exemptions 

Given that RATs are self-administered tests and therefore are not conducted by a nurse or doctor, they are likely to attract an 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.

In order for the minor benefit exemption to apply, tests need to be provided on an infrequent basis and the cumulative value of the tests, per employee, over the course of the FBT year (April 1 to March 31) needs to be less than $300.

For the otherwise deductible rule to apply, the supply of RAT tests would need to be a mandated requirement of the relevant jurisdiction.

Time to prepare

Businesses should prepare for an FBT consequence in the upcoming FBT year if they are currently 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.

However, the subject of deductibility and FBT consequences is likely to be an evolving issue where rules will be adjusted according to developing circumstances.

On a positive note, tax deductions can be made by employers that supply rapid antigen tests to employees, with it being considered an employment related expense as it is intended to provide a safe working environment.

It is important for businesses to take into consideration their decision to supply rapid antigen tests to employees, with those who continue to supply RATs to expect a fringe benefit tax in the upcoming FBT year.

Seeking professional accounting guidance could bring relief to many businesses as advisors will be able to guide you through relevant FBT exemptions while providing an independent perspective on whether or not continuing to supply RAT tests is the best decision for your business.