Claiming GST credits for employee reimbursements

Did you know that employers registered for GST can claim GST credits for reimbursements made to employees?

Here’s a quick run-down on what qualifies, what doesn’t, and how to claim.

What is a reimbursement?

You make a reimbursement when you pay an employee for the price (or part of the price) of a purchase they made. You also pay a reimbursement if you pay:

• your employee for an expense they haven’t yet paid, but are liable for,
• your employee for an advance on an expense they have not yet incurred (they must repay any unspent amount), or
• for an expense on behalf of your employee.

Where there is personal use of the item, or non-cash employee benefits invloved, you must consider liability for FBT.

When is a GST credit available?

GST credits are available for reimbursing employees when:

• the employee’s expense is directly related to your business activities, or the reimbursement is an expense payment benefit*
• the item bought is taxable, and
• your employee is not directly entitled to a GST credit – you can’t both claim for the same expense.

* An expense payment fringe benefit may arise when you reimburse an employee for expenses they incur, or you pay a third party for expenses incurred by an employee. In either case, the expenses may be business expenses or private expenses, or a combination of the two.

When is a GST credit not available?

GST credits will not be available when:

• the reimbursement is for a non-deductible expense,
• the expense relates to input taxed sales made in the running of the business, and you exceed the special threshold for financial purchases (a reduced GST credit may be available on specific purchases), or
• you paid the employee an allowance, or the payment was based on a notional expense (rather than an actual expense), for example, a cents-per-kilometre payment.

How to claim your GST credit

You claim the GST credit in your Activity Statement. You must keep the receipt or tax invoice issued to the employee to substantiate the claim.

If you would like to discuss how to treat staff reimbursements in your business, speak to a Synectic adviser today.