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If you are an employer who is registered for GST, you may be entitled to GST credits for payments you make to reimburse your employees (and their associates) for their expenses.
You can claim GST credits if you have relevant documents, such as receipts or tax invoices that were issued to your employee, and if the payments meet the requirements of the GST legislation. Your employee should provide these documents to you to substantiate their claims for reimbursement.
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GST definitions: GST credits, payments
If you are registered for GST, you are entitled to a GST credit for an employee-reimbursed expense if you meet all of the following criteria:
If you are entitled to a GST credit, you can claim it in your activity statement once your employee gives you a tax invoice or receipt for the expense.
You can receive an expense payment benefit when:
You need to have a tax invoice if the expense is more than $82.50 (GST inclusive).
You are not entitled to a GST credit if you:
GST definitions: sales
There are separate rules for exceeding the financial purchases threshold on current purchases and future purchases.
If it is assumed that all your financial purchases made during the previous 12 months were made solely for a creditable purpose, you will exceed the financial purchases threshold for current purchases if the amount of:
Tax Laws Amendment (2011 Measures No. 9) Act 2012External Link
GSTR 2003/9External Link Goods and services tax: financial acquisitions threshold
You make a reimbursement where you pay your employee for the price, or part of the price, of a particular purchase they make. For example, if your employee incurs an expense of $220 for a purchase, you may pay them $220 (the whole price) or you may decide to pay them a lesser amount, say $110 (half the price). Either payment will be a reimbursement.
You also make a reimbursement if you pay:
Example – reimbursement of a work-related expense
Alexandra employs Petra in her advertising agency. Petra purchases taxable craft materials for a client presentation that she is responsible for. The materials cost Petra $90. The expense is for Petra's work in the agency and Alexandra's policy is to reimburse these expenses if tax invoices are presented. Petra makes a claim for her expense with the receipts attached and Alexandra pays her $90.
Alexandra is entitled to a GST credit on the reimbursement she pays Petra for her purchase. Alexandra can claim the GST credit as Petra has given her a tax invoice for the purchase.
Example – reimbursement of expense payment benefits
Colin's children attend a non-government school. Colin pays their yearly school fees in advance. He also pays for school uniforms. Colin's employer agrees to reimburse him these expenses after he gives his employer all of the relevant receipts and invoices. Colin's employer makes separate payments for each of the supplies of education (GST-free) and uniforms (taxable). Both payments to Colin are expense payment benefits.
Colin's employer is entitled to a GST credit on the reimbursement for Colin's purchase of taxable school uniforms. The employer can claim the GST credit as Colin has provided the relevant documents. However, even though his employer reimbursed the school fees, they cannot claim a GST credit because the cost of education is GST-free.
Colin's employer may have a fringe benefits tax (FBT) liability for the reimbursed expenses.
'Expense payment benefit' means a fringe benefit that is a benefit of a kind referred to in section 20 of the Fringe Benefits Tax Assessment Act 1986. (A New Tax System (Goods and Services Tax) Act 1999 s195-1 - DictionaryExternal Link).
TR 2001/2External Link Fringe benefits tax: the operation of the new fringe benefits tax gross-up formula to apply from 1 April 2000
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