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Employee reimbursements and GST

Posted on 22 July '15 by , under General News.

Business owners registered for GST may be able to claim GST credits for an employee-reimbursed expense. A reimbursement occurs when a business repays an employee for the price (or part of the price) of a purchase they have made.

There are three conditions that an owner must meet in order to claim GST credits:

  • the employee’s purchase must be taxable.

  • the purchase is related to the employee’s work activities.

  • the employee is not entitled to a GST credit for the expense.

To substantiate the claim, the owner must also be able to provide the relevant receipts or tax invoices issued to the employee. However, business owners need to be aware that they may be liable to Fringe Benefits Tax (FBT) when items are purchased for personal use or the purchase is part of non-cash employee benefits.

Business owners cannot claim GST credits for employee allowances, non-deductible expenses and reimbursed expenses that contribute to the running of the business that exceed the financial purchases threshold.