Rapid Covid tests to be tax deductible but Frydenberg says pandemic supports must end

Rapid Covid tests will be made tax deductible for workers and businesses, but the treasurer, Josh Frydenberg, says other economic support measures must wind up as the economy returns to normal.

In a major economic speech to the Australian Industry Group on Monday, the treasurer will also announce that he has tasked the Productivity Commission with undertaking another five-yearly review into reforms to enhance productivity.

Inflation is rising faster than at any point in the past decade, with the cost of non-discretionary goods rising faster than discretionary goods, but is subdued compared to the US where inflation is now topping 7%.

Under the changes to the tax system to allow for Covid tests to be tax deductible, both PCR and rapid antigen tests will be covered, with the scheme to apply from the 2021-22 financial year.

This means that someone on a marginal tax rate of 32.5% will receive a refund at tax time of about $6.50 for every dual pack of RAT bought for $20.

A small business would reduce its fringe benefit tax liability by about $20 for every dual pack of RATs bought for $20 and provided to employees.

While there are limits to how tests can be claimed under current tax laws, the proposed amendments will clarify that all Covid tests bought for work-related purposes will be tax deductible for income earners, and exempt from FBT for businesses.