FBT, COVID-19 tests and the otherwise deductible rule

Employers may have to pay fringe benefits tax if they provide their employees or family members with COVID-19 tests.

Last updated 25 March 2024

Overview

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.

Where you provide a test to an employee and keep 'ownership' of the test, the benefit will be a residual benefit. For example, this may be the case where you either:

require the test be returned to the workplace for disposal
only allow limited work-related use of the test and require your employee to notify you of the test results.

For more information, see Fringe benefits tax for small business.

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
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.

For more information, see FBT for small business – minor benefits exemption.

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 declarations.

For more information, see COVID-19 test expenses.

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 day care
- your employee works from home and doesn't intend to attend the workplace
- you haven't received the declarations that are required under the FBT law
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.

If the otherwise deductible rule doesn't apply, and you provide COVID-19 tests to customers in the ordinary course of your business, you may be able to reduce your FBT where you provide an in-house fringe benefit. If you give one or more in-house fringe benefits to an employee during the FBT year, you can reduce the total of the taxable values of the in-house fringe benefits by $1,000 if the benefits are not provided under a salary packaging arrangement.

For more information, see:

Example: COVID-19 tests fully deductible to employee

Stella is a casual employee at a local café. In April 2022 Stella's employer buys a qualifying multi-pack of COVID-19 tests, which is given to Stella. Stella only uses the tests before starting a shift if she has any COVID-19 symptoms or has been in contact with a COVID-19 case.

Stella would be able to claim deduction for the cost of these COVID-19 tests if she had paid for them and had not been reimbursed by her employer.

Stella's employer can reduce the cost of the property fringe benefit to nil under the otherwise deductible rule, provided the required records are kept.

Example: COVID-19 tests where only partly deductible to employee

Brett buys a qualifying two-pack of COVID-19 tests at the local pharmacy. Brett's employer reimburses Brett for the cost of the tests.

Brett uses one test to confirm his child doesn't have COVID-19 before going to school. A week later he uses the other test to confirm his COVID-19 status before attending his place of work, as he was exposed to COVID at a child's birthday party.

Brett's employer can reduce the value of the expense payment benefit by 50% by applying the otherwise deductible rule, provided the required records are kept.

End of example

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
completed appropriate employer declaration or employee declaration.

Employer 'no private use' declarations

In some circumstances you can complete either:

A benefit covered by one of these declarations is exempt from FBT.

The declaration must be:

in the approved form
completed by the due date for lodging your FBT return, or the 21 May if you don't need to lodge an FBT return
completed annually.

Expense payments – no private use declaration

An expense payment benefit that is covered by a 'No private use declaration – expense payment benefits' is an exempt benefit.

To be exempt, an expense payment benefit must come from the expenditure being reimbursed because it is wholly employment related. That means, under the 'otherwise deductible' rule, its taxable value is nil.

In such instances, you will be able to make an annual declaration.

The declaration must:

cover all expense payment benefits provided to employees for COVID-19 tests
state that the benefits were provided for employment-related purposes only, and there was no private portion.

For more information, see Chapter 20.8 Expense payments – no private use declaration of FBT: A guide for employers.

Residual benefits – no private use declaration

A residual benefit that is covered by a 'No private use declaration – residual benefits' is an exempt benefit.

A residual benefit is exempt if it comes from using a COVID test that is subject to a consistently enforced prohibition on private use. This means, under the 'otherwise deductible' rule, its taxable value is nil.

In such instances, you will be able to make an annual declaration. The declaration must:

cover all residual benefits provided to employees
state that the benefits were provided for employment-related purposes only and there was no private portion.

For more information, see Chapter 20.3 Residual benefits – no private use declaration of FBT: A guide for employers.

Employee declarations

An employee declaration is written advice given to you by your employee. It contains information relating to the fringe benefits they have received.

To apply the otherwise deductible rule, the employee declaration must:

contain information that tells you how much of the COVID-19 test cost that the employee would have been able to claim as an income tax deduction
be in the approved form
be provided by the due date for lodging your FBT return, or the 21 May if you don't have to lodge a return.

Depending on the type of benefit provided, your employee will need to complete any of the following:

Expense payment fringe benefit declaration (NAT 74598)
Property fringe benefit declaration (NAT 75086)
Residual fringe benefit declaration (NAT 75091)
FBT alternative record keeping option: instead of getting one of the above employee declarations, you may have the choice to rely on business records.

Recurring fringe benefit declarations

If you're providing ongoing COVID-19 tests to your employees, they can complete any of the following:

Recurring fringe benefit declarations apply:

for 5 years
for identical benefits
if the percentage that could be claimed as a deduction reduces by less than 10%
unless a later recurring fringe benefit declaration is provided for an identical benefit.

This means your employee may only need to complete a recurring fringe benefit declaration once every 5 years.

Example: otherwise deductible rule applies and employer does not have to pay FBT

ABC Co requires their employees to have a negative COVID-19 test result before attending the workplace.

ABC Co gives each employee a qualifying pack of 5 COVID-19 tests for the week, and this is done every week unless the employee is on holidays.

Ben, an employee, takes a COVID-19 test before attending the workplace each workday and lets his employer know the result.

Ben completes a recurring property fringe benefit declaration on 31 March 2023 for the year.

In the declaration, Ben:

states his full name
declares that COVID-19 tests were provided to him from 1 April 2022 to 31 March 2023
states the COVID-19 tests were used by Ben to confirm he didn't have COVID-19 before attending the workplace, as required by his employer
declares that he would have been entitled to a deduction of 100% of the cost of the tests if he'd purchased them himself
confirms his understanding of when the recurring property benefit declaration applies
signs and dates the declaration.

Ben's employer can use the information in the recurring property fringe benefits declaration to reduce the taxable value of these property fringe benefits to nil.