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.

“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.

Source: AccountantsDaily

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Teachers, medical staff and personal services workers such as hairdressers could claim deductions for masks, hand sanitisers and RATs without the need for legislative changes, said the director of tax communication at H&R Block.

Mark Chapman said if RATs were purchased as a result of your job, they were already covered by existing tests for work-related purpose.

But the changes flagged by the government did make good headlines.

“The Government has made a bit of a song and dance that they are going to allow a deduction for covid tests and they’re going to introduce legislation to specifically allow this from 1 July,” he said.

“But the reality is that these tests were probably always tax deductible anyway.

“If the test has been purchased for a work-related purpose, then quite simply it’s always been tax deductible.”

He said RATs were just one example of what could be claimed, with others including masks and hand sanitisers.

All would be allowable for a range of workers who come into close contact with the public, such as hairdressers, beauty salon workers, teachers and medical centre staff from doctors to nurses, receptionists and cleaners.

“They’re all entitled to those as a deduction,” he said.

But he said one question over COVID-related costs had been closed down by the ATO.

“The costs of travel to actually purchase the test is a question that’s sprung up a few times recently, and basically the ATO has said that won’t be tax deductible because they regard it as private expenses,” he said.

And if you were subject to an isolation mandate the situation was straightforward.

“If you’re not getting paid, you’re not paying tax. It’s basically as simple as that,” he said.

Source: AccountantsDaily

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In an address to Australian Industry Group on Monday (7 February), Treasurer Josh Frydenberg confirmed the federal government would look to ensure COVID-19 testing expenses are tax-deductible.

“Since the start of 2022, the Government has secured more than 80 million Rapid Antigen Tests for delivery in January and February for use in Aged Care and other high‑risk settings. Our government is taking action to remove uncertainty around the tax treatment of these tests,” the Treasurer said.

“Today, I’m announcing that we will ensure that COVID‑19 testing expenses are tax deductible for testing taken to attend a place of work, giving businesses and individuals more clarity and assurance.

“We will also ensure that fringe benefits tax (FBT) will not be incurred by employers where COVID‑19 tests are provided to employees for this purpose.”

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”.

“This decision doesn’t create carte blanche to purchase RATs on the government’s dime. Business and employees still need to jump [through] a few hoops to access this tax relief,” she explained, adding that there must be “a nexus to work to claim this deduction or FBT exemption” as private usage is unlikely to be covered by the legislation.

“Tax agents must take reasonable care to ensure a RAT deduction or FBT exemption is valid. In the case of a business client, they should be mindful of the size and nature of the business. Is the number of RATs purchased proportionate and does it seem reasonably necessary?”

Looking ahead, Ms Kasapidis noted she expects the ATO to be on high alert in respect to unusual RAT expense claims come tax time. For example, an employee who has spent most of the year working from home, but is claiming a deduction for a large number of RATs, may raise suspicions, she flagged.

“The enabling legislation has yet to be enacted, although this may come soon as there aren’t many parliamentary sitting days left before an election is likely to be called. Practitioners should keep an eye out for the legislation, and check the details when it’s published, as well as any ATO guidance which is issued subsequently,” Ms Kasapidis advised.

“The legislation will be backdated to 1 July 2021. Business clients are likely to have records to substantiate their claims, however, employees who have previously purchased RATs may not have held onto receipts. This is an opportunity to remind clients of the importance of good record keeping.

“Employees may need to be reminded that this tax deduction won’t provide a dollar for dollar refund of the cost of purchasing the RAT, so they will still be out of pocket.”

Tony Greco, general manager 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.”

Source: AccountantsDaily

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Business confidence and profitability bounced back in October, as NSW and Victoria reopened and pre-pandemic operations recommenced. 

The majority expect to return to pre-COVID profitability levels by November 2022, according to an HSBC survey of over 7,300 global businesses, including 527 Australian companies.

Looking ahead to future risks, a resurgence of COVID-19, supply chain disruption and a decrease in consumer demand ranked as the top three threats to business growth.

The HSBC Navigator survey found 65% of Australian businesses are optimistic they can generate growth over the next 12 months, in line with international peers.

It similarly found 49% of businesses expect to increase revenue 10% or more over the next year.

The vast majority — 89% — rank the introduction of ‘new products and services’ as the main driver of their anticipated growth. 

Steve Hughes, head of commercial banking for HSBC in Australia, said business optimism was driven by the country reopening its international borders. 

“As our borders reopen, we anticipate that local companies will benefit as workforces and supply chains reconnect with international markets” Hughes said.

Despite overwhelming optimism, the Australian organisations surveyed cited several factors as cause for concern outside of a resurgence of COVID-19. 

Businesses said supply chain disruptions and decreased consumer spending represented their core concerns, at 26% and 25% of respondents respectively.

Since the start of the pandemic, supply chain delays have slowly escalated, driven by a perfect storm of understaffed ports, skyrocketing container prices and an explosion in demand driven by consumers. 

In early November, a report from the ACCC outlining the impact to Australian businesses of supply chain disruptions said costs now risked being passed on to consumers.

NAB’s October Business Survey similarly showed a build up of price pressures.

It reported that elevated goods demand alongside supply chain disruptions and border restrictions had pushed inflation to the highest level in a decade.

While product prices continue to track at a high rate, retail price growth eased considerably, NAB said, projecting that price pressures could “persist over coming months before goods demand and the labour market normalise”. 

In response to ongoing supply chain risks, organisations said they were investing in new technology and adopting sustainable practices to protect against future challenges. 

Survey respondents also expressed a desire to increase international trade to mitigate supply chain issues, with 43% tipping increased trade with North America as a desirable new trading partner. 

Hughes said the responses from Australian companies also indicated a growing focus on sustainability.

Moving into 2022, Australian firms were looking to better integrate ESG factors into their operations and those of their partners. 

“The survey supports what we are hearing from our clients — that sustainability is a key focus across the Australian market,” Hughes said.

“It is clear that one key area being prioritised to help drive this change is the sustainability credentials of their supply chains.” 

Overall, however, business confidence jumped to above average levels in October, as measured by the NAB business confidence index, with retail, business, finance and property, and personal and recreation all tracking large confidence improvements.

Alan Oster, chief economist at NAB group, said the results reflected the return of business conditions above their long-run average.

“These results support our expectation of a strong rebound in activity as lockdowns are lifted in the final months of 2021,” Oster said. 

Source: BusinessInsider

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However, the building sector, in general, is still experiencing a significant price increase in building materials, particularly when it comes to steel and timber products, due to sourcing and shipping constraints. 

There are three main causes of building price inflation: 

• First, the Black Summer Bushfires in 2019/2020 destroyed a large amount of local hardwood and softwood.
• Previously, Australia imported 25% of its timber. That has become tricky to navigate due to the shipping constraints brought about by the pandemic. 
• And due to the Government Home Builder Scheme, there is a higher demand for materials because of new builds, but a low supply of materials.

Beyond the supply shortages, labour issues are causing building projects to stall, which is significantly impacting when the build is actually completed.

Nonetheless, this does not mean that all builders are struggling with this and you should consult your builder of choice to gain more accurate information based on your building project.

Here’s what you can expect from building cost price increases. 

Brisbane

Building contractors are still submitting offers to complete work, so the tender activity levels in the construction industry are strong, and there is no sign that that is going to change in the coming months. 

However, the uncertainty around the supply and demand of building materials impacts how long the building project will take. So, you’ll likely see extensions to contract durations to accommodate extended lead times.

Source: DuoTax

Melbourne

Due to the housing boom, it looks like the high level of activity within the infrastructure sector will continue into the next quarter. However, the construction industry continues to endure the COVID-19 restrictions. 

And due to a lack of skilled labour and availability of critical materials, the effects of increased prices will likely be realised in the coming quarters. 

Source: DuoTax

Sydney

Thanks to the range of policies in place before the June lockdown, the construction industry continued to grow throughout all sectors in Sydney. 

However, the recently increased border restrictions and lockdown have influenced the supply chains and the import time frames, driving more price increases and causing delays in project delivery. 

Fortunately, with the ease of local restrictions looming and the reopening of borders, the sector’s confidence level is likely to recover. 

Source: DuoTax

Key Takeaways

The Australian construction industry has experienced a period of unprecedented growth in recent years, driven by demand for new homes that is outrunning supply. This trend looks set to continue as prices grow above inflation levels due to shortages with labour and materials – limiting building projects across all major markets nationwide.

In the wake of COVID-19, many global supply chains have come to a grinding halt. This has had major consequences for both material delivery and pricing. Coupled with state border closure, significant labour shortages are resulting in delayed project times. 

While contractors seem to be absorbing the price increases, if they continue to rise, it’s unlikely that they will be able to sustain the absorption. So, if you are considering building a new property, it’s worth taking into account that there is likely to be a significant increase in project costs over the next few quarters. 

Source: DuoTax

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