Claiming GST credits for employee reimbursements
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If you own a business, have staff and are registered for GST (Goods and Services Tax) you may be allowed to claim GST credits for employee reimbursements you’ve paid.
Some of the employee reimbursement criteria include:
• The expense is directly related to the employee’s activity or the payment is an “expense payment benefit” (see definition below)
• The item bought by the employee was taxable (not input taxed)
• The employee is not entitled to the GST credit
The Tax Office does stipulate that the business will need to have documentation such as receipts or tax invoices issued to the employee that received the reimbursement. These documents will be verified and will need to be substantiated when making the claim.
If your small business qualifies for these credits, they can be claimed on the Business Activity Statement.
Expense Payment Benefit
According to the Tax Office, this is when a business makes a payment to (or reimburses) a staff member “in whole or in part, of an amount of money spent by your employee as part of their employment with you.’ This may also be considered a Fringe Benefit and the FBT (Fringe Benefit Tax) may apply.
In general, a business is NOT entitled to the GST reimbursement credit if:
The reimbursed amount is a “non-deductible expense” such as; client entertainment expenses (usually only half of the expenses are deductible for entertainment purposes)
The reimbursed amount is related to the input tax sales made in the running of the business and exceeds the threshold set by the Tax Office. (A reduced GST credit may be available on specific purchases)
The expense is part of an employee “allowance.” (see definition below)
Allowance: The Tax Office defines an allowances as a payment based on a “notional”cost rather than an actual expense. For example if the employee is paid a cents-per-kilometre for use of their personal car for business related travel, then this is an allowance and not a reimbursement.
A reimbursement is when a business makes a payment to an employee for the cost of, or part of the cost of something they purchased.
For example, if an employee spent $200 on an expense and is reimbursed the entire $200 or part thereof, that payment is a reimbursement.
Some other examples of reimbursements include:
If the business pays for a particular expense, even if the employee has not paid it yet, it is something that they will become liable to pay.
If the business pays an advance up front for something the employee has to pay, even if they have not paid it yet. (They must repay any unspent amount back to the business)
If the business pays an expense on behalf of the employee, such as when a business makes a sale to an employee – the GST law treats this as a type of reimbursement.
Please make a note if the item purchased is for any personal use or there is a non-cash element, this might be considered a Fringe Benefit and the FBT would apply. If you are confused about any of these taxes, credits or have any questions, one of our qualified business accountants at Hillyer and Riches will be happy to help.
Hillyer Riches Management Pty Ltd is a Corporate Authorised Representative (No 466483) of Capstone Financial Planning Pty Ltd. ABN 24 093 733 969. AFSL / ACL No. 223135.This document contains general advice only and is not personal financial or investment advice. Also, changes in legislation may occur frequently. We recommend that our formal advice be obtained before acting on the basis of this information.