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Expenses incurred from the test before the individual engages in work will most likely be covered, says CPA Australia.
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ATO hints at ‘common sense’ approach to COVID test deductions
06 April 2022
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CPA Australia’s senior manager tax policy, Elinor Kasapidis, said the ATO is likely to take a “common-sense approach” to tax deductions on COVID-19 workplace tests.
This would allow employees to claim tax deductions for COVID-19 tests where test expenses were incurred before attending work.
There is currently uncertainty around the application of the new COVID-19 deductibility legislation due to the direct nexus between the costs of the test and the taxpayer’s assessable income.
COVID-19 testing costs may continue to be non-deductible where it is considered to be an expense incurred before the individual engages in the activity that produces their assessable income, such as where the expenses are non-deductible preliminary expenses.
Ms Kasapidis said the ATO was likely to take a more reasonable approach to the issue.
“CPA Australia had previously questioned the wording of the rules due to potential confusion about whether tests taken before work would be covered,” she said.
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“It appears the ATO is taking a common sense approach with its guidance, confirming that tests will be deductible if performed before attending work.
“The ATO is also taking a sensible approach to record-keeping, recognising that many may not have been keeping records since July last year.”
Business clients were likely to have records to substantiate their claims, but employees who had previously purchased RATs might not have held on to receipts.
This would be an opportunity to remind clients of the importance of good record-keeping.
Ms Kasapidis said accountants had to take reasonable care in checking COVID test claims.
“This includes ensuring the taxpayer has evidence of the requirement to test, a reasonable record of purchases and that the value of the claim makes sense given their employment,” she said.
Tax agents would also need to take reasonable care to ensure a RAT deduction or FBT exemption was valid. In the case of a business client, they should be mindful of the size and nature of the business.
“Employers affected by the FBT changes will also have to adjust their records for the new rules,” she said.
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