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COVID-19 PCR and rapid antigen tests to be tax-deductible

The federal government is set to make COVID-19 tests tax-deductible for Australian individuals and exempt from fringe benefit tax (FBT) for businesses when they are purchased for work-related purposes. The legislation will be effective from the 2021-2002 FBT and income years and will be backdated to 01 July 2021. 

This means Australians earning an income taxed at 32.5 per cent (up to $120,000 tax bracket) will receive a tax refund of about $6.50 for every pack of two RATs purchased for $20. Small businesses will reduce their FBT liability by about $20 for every dual pack of RATs purchased for $20 and provided to employees.Tax-deductible COVID tests

In announcing the changes to tax legislation on 07 February, Treasurer Josh Frydenberg said, "COVID-19 tests are an important tool being used by businesses to protect their workforce and to ensure they can keep their doors open and our supply chains running."

Mr Frydenberg said the move to make PCR and RATs tax-deductible would bring COVID-19 tests "in line with other work-related expenses".

The amended law will clarify that all COVID-19 tests purchased for work-related purposes will be tax-deductible for Australians and exempt from FBT for businesses.

Currently, in some situations where COVID-19 tests are purchased and used as a preparatory step (for example, a retail worker using a test before going to work), rather than for use while working and earning money, the expense may not be tax-deductible.

Key points:

  • PCR tests and RATs will be tax-deductible, backdated to 01 July 2021.
  • Australians earning an income taxed at 32.5% will receive a refund of about $6.50 for every $20 pack of two RATs.
  • Small businesses will reduce their FBT liability by about $20 for every dual pack of RATs purchased for $20.
  • Initially, the change will see PCR and rapid antigen tests (RATs) become tax-deductible, but the government will include future medically-approved tests in the scheme.

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