GST reimbursements & credits: Everything you must know

In this guide, we’ll cover everything you need to know about GST credits and GST on reimbursement of expenses, including how they work, who can claim them, common mistakes to avoid, and how Budgetly can help businesses track GST expenses and reimbursements with ease.

1. What are GST credits?
2. Who can claim GST credits?
3. How do GST credits work?
4. What is GST on reimbursement of expenses?
5. When can you claim GST on reimbursements?
6. Why businesses should track GST credits and reimbursements
7. Common mistakes businesses make with GST claims
8. How Budgetly helps businesses manage GST expenses and reimbursements
9. Final thoughts on managing GST reimbursements and credits

What are GST credits?

GST credits, also known as input tax credits, allow businesses to claim back the GST paid on goods and services purchased for business use. Instead of absorbing GST as an expense, businesses can deduct the GST component from their total GST liability, reducing the amount they need to pay to the ATO.

For example, if a business purchases office supplies for $110 (including $10 GST), it can claim the $10 GST credit when lodging its Business Activity Statement (BAS).

Who can claim GST credits?

To be eligible to claim GST credits, a business must:

• Be registered for GST with the ATO
• Have purchased goods or services for business use
• Have a valid tax invoice that includes GST
• Ensure the purchase is not GST-exempt

Businesses that are not registered for GST cannot claim GST credits, even if they have paid GST on their purchases.

Are you preparing documents for the Financial Year? Check out these free Budgetly resources:

How do GST credits work?

Claiming GST credits is a straightforward process, provided businesses maintain accurate records. Here’s how it works:

1. Make a GST-inclusive purchase – The supplier charges GST on an eligible business-related expense.
2. Obtain a tax invoice – The invoice must include the supplier’s ABN, GST amount, and description of the goods/services.
3. Lodge a BAS report – Businesses report GST collected from customers and GST paid on expenses.
4. Deduct GST credits from GST payable – The difference is the final amount owed to the ATO or refunded if GST credits exceed GST collected.

What is GST on reimbursement of expenses?

GST on reimbursement of expenses applies when an employee or business pays for a work-related expense out-of-pocket and later seeks reimbursement. In some cases, businesses can claim back the GST portion of reimbursed expenses.

Examples of reimbursed expenses that may include GST:

• Employees paying for travel and fuel costs
• Contractors purchasing materials on behalf of a company
• Business owners paying for office supplies with personal funds

However, the rules surrounding GST on reimbursements can be complex, depending on the nature of the expense and tax invoice requirements.

When can you claim GST on reimbursements?

A business can claim GST on reimbursed expenses if:

• The original purchase was subject to GST
• A valid tax invoice is available
• The expense was incurred for business purposes
• The business reimburses the employee or contractor in full

However, if an employee is simply given an allowance instead of reimbursement, GST credits cannot be claimed as the allowance is treated as part of payroll rather than a reimbursable business expense.

Why businesses should track GST credits and reimbursements

Proper tracking of GST credits and reimbursements is crucial for financial accuracy and compliance. Here’s why businesses should keep detailed records:

1. Reduce tax liability – Claiming GST credits lowers the amount of GST payable to the ATO.
2. Improve cash flow – Getting GST refunds or offsets helps maintain healthy business finances.
3. Ensure tax compliance – Proper documentation prevents errors and penalties during audits.
4. Avoid double taxation – Tracking reimbursed expenses ensures businesses claim only what they are entitled to.

Common mistakes businesses make with GST claims

Many businesses make errors when claiming GST credits or handling GST on reimbursements. Here are some common pitfalls to avoid:

1. Claiming GST credits on GST-free expenses

Certain expenses, such as basic food items, education, and medical services, are GST-exempt. Businesses cannot claim GST credits on purchases that do not include GST.

2. Not keeping valid tax invoices

Without a valid tax invoice, businesses cannot claim GST credits, even if they have paid GST on an expense.

3. Misclassifying reimbursements vs. allowances

Allowances paid to employees are not reimbursed business expenses and do not qualify for GST credits.

4. Incorrectly claiming GST on international purchases

Goods and services bought from overseas suppliers may not include GST, making them ineligible for GST credits.

5. Failing to track reimbursements properly

Businesses that fail to document reimbursed expenses correctly risk over-claiming GST credits or missing out on eligible claims.

How Budgetly helps businesses manage GST expenses and reimbursements

Managing GST credits and reimbursements manually can be time-consuming and prone to errors. Budgetly offers businesses an efficient way to track GST-related expenses, ensuring compliance and accurate claims.

1. Automated GST tracking

Budgetly records every GST-inclusive transaction, making it easier to track eligible GST credits.

2. Digital receipt management

Users can upload tax invoices and receipts instantly, ensuring every claim is supported by valid documentation.

3. Clear expense categorisation

Budgetly helps businesses separate reimbursed expenses from allowances, preventing incorrect GST claims.

4. Real-time reporting

Generate detailed reports to review GST expenses, track claims, and maintain compliance.

5. Better financial visibility

With accurate records, businesses can manage cash flow and tax planning effectively.

Final thoughts on managing GST reimbursements and credits

Understanding GST credits and GST on reimbursement of expenses is crucial for reducing business costs and ensuring tax compliance. Businesses that correctly track GST-related expenses can lower their tax liabilities, improve cash flow, and avoid costly errors.

Budgetly makes managing GST expenses and reimbursements easier by providing real-time tracking, automated categorisation, and digital receipt management.

Take control of your GST claims today with Budgetly! Why not schedule a demo with us today, or watch a 10-minute recorded demo!