How to claim COVID expenses on your tax: RATs, PCRs, quarantine

Most commonly incurred expenses related to COVID-19 can be tax deducatable. (Source: Getty)

With RAT and PCR tests expensive, it’s a small relief to know that many of the most commonly incurred expenses related to COVID-19 can be tax deductible.

Read more from Mark Chapman:

• Budget 2022: What it means for your taxes

• Trusts and taxes: What you need to know

• Tax relief for your business losses during Covid

Here’s H&R Block’s guide to which COVID-related expenses you can claim:

Rapid Antigen Tests (RATs)

The Government announced it was making COVID-19 tests tax-deductible for Australian individuals when they were purchased for work-related purposes.

This legislation will be backdated to apply for the 2021-22 income year (from July 1, 2021).

But did you know they are probably already deductible?

Under the existing general deduction provisions, an individual may qualify for a tax deduction for the cost of a COVID-19 test (either PCR or RAT) where they are taken for work-related purposes, for example, where there is a mandatory requirement under an employer’s COVID-19 mandate.

A COVID-19 test may also be required by certain countries and states in order for an employee to enter that territory or return to their home state.

This too is tax deductible where the test is required for a work-related trip.

RAT kits purchased by individuals for private purposes (e.g. personal travel, convenience, no access to PCR testing) will not be tax deductible, either under existing law or under the Government’s proposals.

Remember to keep all receipts relating to COVID-19 testing and take them with you when you get your tax return prepared, together with substantiation that shows the test was for work-related purposes.

If you incur transport expenses to get to and from the site of a COVID-19 PCR test (or expenses in travelling to the chemist or supermarket to acquire a RAT), these will not be tax deductible as they are regarded as private expenses, even if the test is a condition of your employment.

What if your employer pays for the test?

Where the employer spends money providing RATs to employees, the cost should be a tax-deductible business expense to the employer, as the expense will be necessarily incurred in carrying on the business since the employer has a duty of care to safeguard employees in their workplace.

There are no tax consequences for the employee. However, where a test is provided to an employee, or the cost reimbursed, a fringe benefits tax (FBT) liability may arise to the employer, although the Government has indicated such expenses will be made exempt from FBT from July 1, 2021.

Once again, however, the Government’s work may already be done. Tests (both PCR and RATs) are already potentially exempt from FBT as work-related medical screening, so no FBT is payable where both of the following apply:

• Testing is carried out by a legally qualified medical practitioner or nurse

• Testing is available to all employees

If only some of the employees get COVID-19 tests, the tests are still exempt as long as they are offered to all employees.

If the tests do not meet these requirements, FBT may arise unless the minor benefits exemption or ‘otherwise deductible rule’ apply.

• Also read: Tax relief for your business losses during COVID

• Also read: How to get $6.50 back on COVID-19 rapid antigen tests

• Also read: Budget 2022: What will happen to the $1,080 tax cut?

The minor benefit exemption will only apply where the tests are provided infrequently and irregularly, and the cumulative value of the tests provided to an employee during the FBT year is less than $300.

The otherwise deductible rule will apply to reduce the taxable value of COVID-19 tests that are taken because an employee is travelling on work, and:

• The test is required by the destination jurisdiction or state

• For the employee to return to Australia or their home state or territory.

Quarantine expenses

If you must quarantine - either during or after a trip while travelling on work - any costs paid by you that relate to the quarantine (e.g. hotel fees, meals) would be tax deductible as the quarantine is undertaken as part of your employment duties.

If not travelling on work, quarantine expenses are private in nature and not deductible.

A deduction for quarantine expenses also cannot be claimed in the following circumstances:

• Fly-in, fly-out employees who travel to a regular work site but are not under the supervision and control of their employers while in transit

• Where the need to quarantine is for a private purpose, for example, returning from a private holiday

And if the employer pays?

Where the cost of quarantine is covered by the employer, there will be no FBT liability, provided the employee was travelling on work.

FBT is not payable where an employer provides emergency accommodation, food, transport or other assistance to an employee if:

• The benefit is emergency assistance to provide immediate relief

• The employee is, or is at risk of being, adversely affected by COVID-19.

In the context of COVID-19, this includes benefits provided that allow an employee to self-isolate or quarantine.

Mark Chapman is director of tax communications at H&R Block.

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