Employee reimbursements and GST
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.
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:
- your employee's expense is directly related to their activities as your employee or the reimbursement is an expense payment benefit
- the sale of the item purchased by your employee was taxable
- your employee is not entitled to a GST credit for the expense.
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 make a payment to another person, in whole or in part, of an amount of money spent by your employee as part of their employment with you
- you reimburse another person, in whole or in part, an amount of money spent by your employee as part of their employment with you.
You need to have a tax invoice if the expense is more than $82.50 (GST inclusive).
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You are not entitled to a GST credit if you:
- reimburse non-deductible expenses, such as the portion of expenses relating to entertaining clients (non-deductible expenses are expenses that you incur as part of running your business that cannot be deducted from your income to calculate your taxable income)
- reimburse expenses that relate to input taxed sales that you make in the running of your business and you exceed the financial purchases threshold (if you exceed this threshold you may only be entitled to a reduced GST credit on certain specific purchases)
- pay your employee an allowance (see Allowances).
Financial purchases threshold
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:
- all the GST credits for those purchases exceeds $50,000 before 1 July 2012 or $150,000 on or after 1 July 2012
- the GST credits referred to above is more than 10% of the total amount of the GST credits you would have been entitled to for all your purchases and importations during that 12 months (including the financial purchases).
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:
- your employee for a particular expense they haven't paid, providing they have become liable for the expense
- your employee an advance for an expense they have not yet incurred, providing they have to repay any unspent amount of the advance to you
- an expense on behalf of the employee, for example, to the business who has made a sale to the employee (the GST legislation treats this type of payment as a reimbursement).
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.
End of example
Find out more
End of find out more
- GSTR 2001/3External Link Goods and services tax: GST and how it applies to supplies of fringe benefits
- TR 2001/2External Link Fringe benefits tax: the operation of the new fringe benefits tax gross-up formula to apply from 1 April 2000