Never before in history has there been such an emphasis on mental health, so much so that nearly one in two Australians have experienced a mental health disorder in their lifetime.

23 March 2022

According to a study by PwC Australia, the Australian tax regime could help improve the mental health and wellbeing outcomes for thousands of workers around the country, drive down the costs of poor mental health on business and in the longer term, grow the national economy.

Mental illness is now the leading cause of sickness absence and long-term work incapacity in Australia, which when partnered with the estimated $200-$220 billion per year cost to the Australian economy each year shows that when individuals are both physically and mentally healthy, they are more productive, experience an improved quality of life and are able to manage stress better.

It is estimated that one in three Australians will experience workplace stress, estimated to cost the economy hundreds of billions of dollars each year. In their study, PwC Australia stated that the countries income tax and fringe benefits tax (FBT) laws could be reformed to support better health and economic productivity by facilitating deductions for individuals. The deductions would focus on certain mental health and wellbeing costs not otherwise reimbursed, or by reinstating a new and improved version of the former net medical expense tax offset.

Tax Leader at PwC Australia Chris Morris stated,

“Currently, the tax system does not support funding the net cost of an individual’s mental health and wellbeing. We should be incentivising people getting the mental health support and care they need - and the tax system has a key role to play”.

How the income tax regime could be changed to improve the mental health and wellbeing of Australians

According to PwC Australia, it is even more important to place additional emphasis on individual health and wellbeing due to the COVID-19 pandemic. As the work environment has changed, employers are increasingly seeking ways to support and put the mental fitness and wellness of their employees first.

In an ever-changing world, it is thought the tax laws could also be changed to better reflect current times. The income tax law should allow for specific deductions for designated mental health and wellbeing costs not otherwise reimbursed through Medicare, employers, or private health arrangements – limited to costs for service provided by a qualified health professional, or the costs of a health professional certified as necessary treatment.

Deductions could cover costs for annual health assessments, mental health plans or other eligible services or treatment. The extent of the deduction could be capped, including a limitation preventing a tax loss and could take a similar form to the current specific deduction for self-education costs.

In addition, consideration should be given to the reinstatement of the former net medical expense tax offset with the inclusion of alternative and holistic wellbeing plans and treatments.

Morris went on to say,

“Allowing individuals access to a larger suite of health benefits, without adverse tax and financial consequences, will result in Australians being healthier, more caring and more resilient - and, in turn, provide more productivity and reduced health costs for the Government.”

How employers can be helped to provide more health and wellbeing benefits to their employees

While the Fringe Benefits Tax (FBT) regime facilitates concessional options to incentivise employers to provide wellness benefits to employees, the regime in its current format is limited either due to a monetary ceiling, reliance on work-related deductibility, or a narrow work-related exemption focus.

According to PwC Australia, there are four key reforms to FBT to make wellness benefits easier to provide, including:

  • Allowing benefits to be deductible - By providing individuals with a mental health related income tax deduction, employers will be able to reduce the value of FBT on any mental health benefits provided to employees;

  • Raise awareness of various exemptions - There are already exemptions that may apply to some wellness related activities - such as mental health support, fitness programs or for chiropractic services - clarity with respect to the availability and better awareness of these exemptions may be beneficial for employers;

  • Increase the minor benefit threshold - The $300 minor benefit cap has remained unchanged since 2007, and no longer reflects today’s standard of living or inflation. An increase to the minor benefit FBT threshold would reduce the employer compliance burden; and

  • Provide an exemption for the provision of private health insurance expense payment and residual fringe benefits payments, allowing employees the ability to salary sacrifice their private health insurance premium, effectively incurring the costs tax free, and meaning the exemption would not be limited to employers willing to pay for the premiums, but to any employee. Alternatively, and having regard to potential fiscal restraints, consideration could be given to providing a specific FBT exemption for mental health-related benefits.

 At Gunderson Briggs, PwC’s message is echoed. Founder and partner, Ken Gunderson-Briggs agrees that the taxation system needs to mold and adapt to ever changing societal needs, especially after 2 years of covid-19 hardships,

“Supporting the mental health of the workforce and the people around us in the office (and now, on screen) has never been so important.  Before Covid, we lost a terrific person to depression.  Mental health issues affect us all, directly and indirectly. Unpredictable events and changes such as the bushfires, covid-19 pandemic and more recently floods have exacerbated the effect.  Simple adjustments to the tax system will support the funding  of  the growing mental health costs of our country’s workforce.”

Andrew Simpson, a partner at Gunderson Briggs since 2013 stated,

”Reinstatement of the former net medical expense tax offset in addition to allowing for specific deductions for designated mental health and wellbeing costs to enable members of the workforce to seek professional where it is needed, can only benefit in the economy in the long run”