Are there tax implication for providing COVID-19 related benefits to your employees?

 More than the two years since COVID-19 changed the way we live, tax has been brought back in to the spotlight as Omicron rages through the community. Employers – both out of necessity and to protect their employees and customers – are providing various benefits to employees including:

• Providing Rapid Antigen Test kits or arranging PCR tests
• Organising in-house vaccinations
• Giving paid leave for testing or vaccination appointments
• Providing transport to testing or vaccination sites
• Providing cash bonuses to encourage vaccination
• Providing non-cash bonuses – such as vouchers and gift cards to encourage vaccination

This article is intended to help navigate the mine-field of tax implications that may arise as a result of COVID-19 related benefits, including income tax, superannuation and FBT. 

What are the tax implications for cash benefits provided to employees to encourage vaccination?

Including cash benefits in payroll for STP, withholding and SG

For employers, cash benefits (including paid leave) provided need to be:

• Included in the employee’s salary and wage, and reported on the relevant payslip and through STP,
• Withhold tax from the payment, as you would any other cash payment to your employee, at the relevant pay as you go withholding rate,
• Include the amount in the employee’s ordinary time earnings, for the purposes of determining compulsory superannuation contributions

This means that there are at least two points at which employers have to be careful and may potentially need to change their internal payroll processes to address these issues on an ongoing basis. We recommend that employers review their payroll processes to ensure that all past cash payments have been appropriately dealt with – including appropriate reporting through STP, withholding of tax and including the payment when calculating superannuation payments. 

Is the treatment the same for non-cash benefits provided to employees?

Current guidance on ATO website on non-cash benefits

The ATO has provided some guidance on their website on the various types of benefits employers have provided over the last two year, including:

• Working from home arrangements
• Work cars being garaged at home
• Items the help protect employees from COVID-19
• Emergency health care
• COVID-19 testing
• Cancelled events
• COVID-19 vaccination incentives and rewards

UPDATED - COVID testing

Current Treasurer Josh Frydenberg announced on 7 February 2022 that the Government was 'set to make COVID-19 tests tax-deductible for Australian individuals and exempt from FBT for businesses when they are purchased for work-related purposes' (ABC, Federal government to make COID-19 PCR and rapid antigen tests tax-deductible, 7 Feb 2022). However, with so few sitting days left before the election, it is unlikely that this will be passes prior to the end of the 2022 FBT year (ending on 31 March 2022).

Despite the announcement, the current guidance based on established FBT principles and legislation is that the following discussed conditions need to be met for testing to be considered tax deductible (and therefore, meeting the FBT exemption rule for 'otherwise deductible' expenses). 

In most circumstances we have come across in our client base, Rapid Antigen Tests are being provided to employees by employers – however they are not being administered by legally qualified medical practitioners or a qualified nurse. As a result, employers will need to consider the FBT implications of providing this ‘non-cash benefit’ to their employees. The minor benefits exemption will only apply where:

• the tests are provided infrequently (e.g. only provided to employees where a positive case is identified vs provided to employees everyday) and irregularly (i.e. not being done on a regular or recurring basis), and
• and the cumulative value needs to be considered against the $300 minor benefit threshold (this is important as individual tests can sometimes cost an employer over $25 each). 

Tracey Dunn from RSM Australia has written a detailed article (‘Rapid Antigen Tests – Tax deductibility myths debunked’) on the FBT ‘cost’ to employers who provide Rapid Antigen Tests, after Prime Minister Scott Morrison made some apparently misleading comments during a press conference. 

Benefits provided to the general vaccinated public, including employees 

Non-cash benefits such as vouchers and gift cards, points in a rewards scheme or goods and services may each attract FBT, however it depends on the specific conditions and whether an exemption or reduction applies. 

For example, where the same benefit is provided to the general public- such as free or discounted goods being provided to vaccinated members of the public and where the employee receives the same benefit as the public, then no FBT should apply as the benefit is not being provided to the employee in respect of their employment. 

Transport benefits related to COVID-19

The ATO has stated that transport provided for employees (whether you provide or pay for employee’s transport) will not have a fringe benefits tax (‘FBT’) implication, as the travel is associated with work-related preventative health care and is exempt from FBT. 

Accommodation, food or transport 

Where emergency accommodation, food and/or transport are provided to employees, there will be no FBT liability, where the emergency is:

• For emergency assistance to provide immediate relief, and
• The employee is, or is at risk of being, adversely affected by COVID-19

Items provided for your employee to work at home during COVID-19

Where items usually used at work are provided for the employees use at home – such as laptops, portable printers, and other electronic devices, these items should be exempt from FBT.

Further, the ‘minor benefits’ exemption may apply to an employer providing items such as a monitor, mouse or keyboard to employees and other stationary and computer consumables, subject to the conditions discussed below. 

Minor benefits exemption may be applicable if under $300

In some circumstances, the benefits may qualify for the minor benefits exemption, where the value is less than $300, and the benefit meets the following criteria:

• The benefit is provided infrequently and irregularly
• The value of the minor benefit and other similar or identical benefits is low
• The total value of the minor benefit and other benefits provided in connection with it is 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 (i.e COVID-19)

However, the minor benefits exemption does not apply if the benefit provided is an in-house fringe benefit or minor entertainment benefit. 

Car parking benefits provided to employees

Where there is a closure of the office and office car park due to COVID-19 (including nearby commercial parking stations used to provide benefits), there will be no car parking benefit provided by the employer during that period. In addition, the duration the car park is close will not form part of the availability period used to calculate the taxable value for those benefits provided outside that period. 

However, now the lockdown processes seem to be in the past, but it is still recommended that employees work from home, this situation becomes messier and less certain. In many situations, the office is open (for a limited number of employees to meet social distancing requirements), which means the car park is also open.

This can result in the situation where an employee is provided a car-parking benefit, but that car-park may remain entirely unused – meaning that the benefit will meet the ‘availability’ test and be subject to FBT. In the alternative, your office may offer a car parking benefit to all employees who are coming into the office that usually wouldn’t have access (as more employees avoid public transport) – which can create greater complexity in the employer’s FBT administration. 

Car fringe benefits

Where a work car is provided to your employee, but due to COVID-19 it is garaged at their home, there can be FBT implications. The ATO guidance states that where a car has not been driven at all, except for the purpose of maintaining the car, the ATO will accept that the car is not held for the purpose of a car fringe benefit. 

The ATO recommends that the operating cost method is used, which would result in nil taxable value and no FBT liability. For this method, the ATO requires that odometer records are kept during the period that the car is garaged.

If the odometer records are unavailable, or the operating cost method is not used, the statutory formula method will apply and there will be an FBT liability, as the car would have been ‘available’ for private use for the entire period that the car was garaged. 

Where the car is being driven for business purposes during COVID-19, and the operating cost method is used, a logbook must be maintained (for at least 12 continuous weeks, or until the car stopped being garaged at home if less than 12 weeks). We note that most clients are observing a very different pattern of use for those cars being driven for business purposes, so logbooks for previous periods won’t be representative of these changed circumstances.

Protection items provided to employees

Where protective items, such as a gloves, masks, sanitiser, are provided to employees to protect them from COVID-19, there may also be FBT implications. 

Where these items are provided where employees have physical contact or are in close proximity to customers or clients while working, or they are involved in certain industries – the benefits are exempt from FBT under the emergency assistance exemption. 

The ATO guidance indicates that where the employment is not the kind described in the above list, it may still be a minor benefit and the minor benefits exemption may need to be considered. We emphasise that there can be issues accessing the exemption if these benefits are provided frequently and on a regular basis moving forward. 

• You have not provided any fringe benefit to the employee/s as the employees/s did not get to attend the event. 
• You have not provided any fringe benefit to the employee as they did not get to attend the event. 

However, there may be an FBT liability where you required the employee to pay for attendance at the cancelled event and you subsequently reimbursed that employee. This would be an expense payment fringe benefit. 

How can Tax Controversy Partners help you?

At Tax Controversy Partners, we understand these practical issues and can help clients or other practitioners to work through how the income tax and fringe benefits tax provisions may apply to their circumstances. 

Our experienced lawyers can represent a client’s interests in engaging with the ATO on these issues, based on our practical experience with ATO responses to previous client circumstances. 

To seek our help with advice on these often complex issues or in dealing with the ATO about those issues, please contact us using our online contact form, via email at admin@taxcontroverypartners.com.au or by phone at 02 8513 3813.