Claiming GST credits for employee reimbursements
Employers registered for GST may be able to claim GST credits for payments they make to reimburse employees or partners for work related expenses.
Individuals who run a business are entitled to a GST credit for an employee-reimbursed expense if:
- the employee expense is directly related to their activities as an employee, or the reimbursement is an ‘expense payment benefit’
- the sale of the item bought by the employee was taxable
- the employee is not directly entitled to a GST credit for the expense
The ATO states that businesses can claim GST credits when they can provide relevant documents, such as receipts or tax invoices, to substantiate claims for reimbursement. Once this documentation has been provided, businesses can claim a GST credit in their Business Activity Statement.
According to the tax office, an ‘expense payment benefit’ is made when a business makes a payment to, or reimburses, another person ‘in whole or in part, for an amount of money spent by the person as part of their employment.
A business is not entitled to receive GST credits if it has reimbursed non-deductible expenses, expenses relating to input taxed sales that are made through running of the business and exceed the special threshold for financial purchases or paid the employee an allowance.
The tax office also states that businesses cannot claim to have made a reimbursement for payments made to employees based on a “notional” expense e.g. making a cents-perkilometre payment to cover the work-related use of an employee’s private car.
A business is considered to make a reimbursement when it pays an employee for the price, or part of the price, of a purchase the employee made e.g. if an employee incurs an expense of $200 and is paid the whole or half of the $220 amount, either payment will be a reimbursement.
A business is also considered to have made a reimbursement when it:
- pays an employee for a particular expense they haven’t yet paid, but are soon to be liable for
- pays an employee in advance for an expense they have not yet incurred, provided that the employee pays back any unspent amount of the advance to the business
- pays an expense on behalf of the employee
When any personal use of a purchased item is involved or the expense relates to noncash employee benefits, a business’s liability for FBT should be considered.