GST: Guide on Reimbursement and Disbursement of Expenses

GST: Guide on Reimbursement and Disbursement of Expenses

1 Aim

1.1 This e-Tax Guide is relevant to all GST-registered businesses that incur expenses and subsequently recover the expenses from another party such  as their employees, customers, related corporations or suppliers. It provides
clarification on the following:
a) The GST principles for differentiating between a reimbursement and disbursement;
b) The GST treatment for reimbursement of expenses; and
c) The concession on claiming of input tax on disallowed expenses where such expenses are recovered from another business.
It also illustrates the application of these principles on some common business examples.

2 At a glance

2.1 The GST treatment for the recovery of expenses depends on whether the expenses are incurred by you as a principal or an agent (i.e. incurred on behalf of another party). The manner of invoicing alone (e.g. showing such expenses as a separate item on the invoice) is insufficient to determine the GST treatment of these items.
2.2 For the purpose of GST, the term “reimbursement” refers to the recovery of an expense that you incur as a principal from another party. On the other hand, the recovery of a payment made on behalf of another party by you as an agent is termed as a “disbursement”. A disbursement does not constitute a supply and hence, is not subject to GST. A reimbursement, on the other hand, may be subject to GST if it is consideration for a supply of goods or services.
2.3 The flowchart in Annex 1 gives an overview of the GST treatment for the recovery of expenses

Related Topic:
Reimbursement of electricity is a service: HC

3 Differentiating reimbursement and disbursement

3.1 For any recovery of expenses, you will first have to establish whether the recovery is a reimbursement or disbursement. To determine this, you should look at whether you have acted as a principal or agent in purchasing the
goods or services and incurring the expenses in the first place.
1GST: Guide on Reimbursement and Disbursement of Expenses