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Tax deductibility of COVID-­19 test expenses

Source: The Hon Michael Sukkar MP 

The Morrison Government is taking action to ensure that COVID‑19 tests (including Polymerase Chain Reaction and Rapid Antigen Tests) are tax-deductible for hard‑working Australians and exempt from fringe benefit tax for businesses, where they are purchased for work‑related purposes.

To remove any doubt, the Government will introduce legislation to make clear that work‑related COVID‑19 test expenses incurred by individuals will be tax deductible. This applies both when an individual is required to attend the workplace or has the option to work remotely.

By introducing this legislation, the Government will also ensure that fringe benefit tax will not be incurred by employers if they provide COVID‑19 testing to their employees for work‑related purposes.

This change will take effect from the beginning of the 2021‑22 tax year and will be in place permanently.

This action recognises that COVID‑19 tests are an important tool for mitigating transmission risks and absences from the workplace.

The Morrison Government has acted swiftly throughout the pandemic to provide Australians and small businesses with clarity and certainty, and continues to do so as they transition back to their workplaces.


The move on RATs has been welcomed by CPA Australia, which called for it in its budget submission.

“We welcome the decision to make RATs tax-deductible and FBT exempt. This will help business and employees manage the workplace costs of COVID-19 compliance,” said Elinor Kasapidis, senior manager tax policy at CPA Australia.

“This is good news, and we expect practitioners will want to let their clients know about the changes.”

While CPA Australia backs the decision on RATs, Ms Kasapidis noted that “there are a few traps for the unwary which we’d encourage practitioners to warn clients about at the same time”.

Tony Greco, general manager of technical policy at the Institute of Public Accountants (IPA) also welcomed the government’s move to make COVID-19 tests tax-deductible and FBT exempt, noting that it removes the “uncertainty” being felt by practitioners and their clients.

We have yet to receive detailed wording of the legislative changes but if his comments are followed through it will remove some of the angst and need for employers to seek professional advice to ascertain whether any of the existing FBT exemptions could apply. The existing FBT rules are antiquated and cannot deal with these new emerging issues and underlies a bigger systemic problem with the FBT regime which is another story for another day,” Mr Greco said.

“It is also good news for employees if they can deduct the cost of procuring RATS for work purposes as this was problematic under existing tax rules.

What we need to see now is the details to ensure the words match the legislative outcome so that we can get on to more important matters and remove all the uncertainties associated with the cost of procuring RAT’s for both employers and employees.”


Common mistakes that made businesses think they failed the JobKeeper 2.0 test (Part 2)

Continuing part 1 of the article, here are another two common misunderstandings that most business owners have experienced:

  • Using the profit and loss report from XERO to work out a 15% or 30% drop.

We would not recommend using a profit and loss report in XERO, especially if you are testing on a cash basis. There are transactions that we have seen in this report that shouldn’t be accounted for as GST cash turnover. We strongly suggest you only use the activity statement report in XERO to work out GST turnover for JK testing purposes. As mentioned above, it is essentially a BAS preparation exercise, but you can only use GST turnover data. There are two common mistakes that we see in this step:

If you use BAS GST turnover and if your G1 is reported as GST inclusive, you have to subtract A1 (GST) out of G1 to get the net GST turnover (without GST). We had a client who used gross GST turnover to test and they thought that they failed the JK test until we completed it correctly for them!
For your reference period (July to September 2019), you need to make sure you check your lodged BAS with the ATO (via the ATO portal) with your current figures. As it has already been 12 months since your BAS was lodged, someone could have made some changes in your reference period. Therefore, if you assume it is correct, you might get the wrong result.

  • I am not qualified for alternative tests

This is a very common misconception. When it gets too hard, we tend to give up. Because the alternative tests are quite complex, unless you are an accountant, we do not recommend you do it by yourself. This is because we as accountants have spent a lot of time reading and learning to develop a sound understanding of the tests. Further, we have had a lot of experience doing the tests for our hundreds of clients. However, it is important to go through all 26 sets of tests thoroughly and in a timely manner, as you will likely need to retest again in January 2021 for the January to March period. Also, more than 50% of our clients who weren’t qualified when they completed the basic test found that they were when they did an alternative test. Could be one of those who would qualify if you took an alternative test?

The legislation is new, so don’t expect it to be one size fits all. There are newly established businesses, high growth businesses and businesses with a lumpy turnover. These businesses are unlikely to pass the basic test. Possibly because their turnover in July to September 2020 could have doubled compared to the July to September 2019 period, despite the fact they have been severely impacted by Covid. JK 2.0 will be a great help to many SMEs, as there are still many unknowns we will have to face before we find a vaccine. Our final advice is to invest in your time - hire an expert to give you a second opinion and don’t give up as there will be a JK 2.0 January to March period!

Good luck and don’t be disappointed if you are not qualified for the JobKeeper 2.0 Program. It means that your business is doing better than other businesses in this difficult time. 

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