Are you aware of when you can and can't claim GST input tax credits on employee reimbursements?
You may be entitled to claim GST input tax credits for payments you've made to reimburse employees for a taxable expense that's directly related to your business activities.
A reimbursement is when you pay your employee the amount, or part of the amount, of a particular work-related purchase they make.
You are not entitled to a GST input tax credit if you pay your employee an allowance or make a payment based on a notional expense (such as a cents-per-kilometre payment, travel or meal allowance). An allowance is when you pay your employee an amount for an estimated expense without requiring them to repay any excess.
The difference between a reimbursement and an allowance is explained in Taxation Ruling TR 92/15.
You're also not entitled to a GST input tax credit if:
- you reimburse non-deductible expenses (such as entertainment expenses)
- you reimburse expenses that relate to input taxed supplies that you make
- your employee is otherwise entitled to the GST input tax credit.
Remember, as with all GST input tax credit claims, you will be expected to hold sufficient evidence to substantiate your claim. Generally, this will be a tax invoice for the purchase that is being reimbursed.
If you’ve made a mistake or have incorrectly claimed GST input tax credits on items that weren't reimbursements, you should make a voluntary disclosure.
Find out when GST registered businesses can (and can't) claim GST credits for employee expense reimbursements.