The GST treatment for the recovery of expenses from another party such as your employees, customers, related corporations or suppliers, depends on whether the expenses are incurred by you as a principal or as an agent.
For the purpose of GST, the term “reimbursement” refers to the recovery of an expense that you incur as a principal from another party. A reimbursement may be subject to GST if it is consideration for a supply of goods or services.
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.
From 31 May 2013, the GST treatment for the recovery of expenses has been revised. Please refer to the following table for the revised GST treatment including whether input tax may be claimed:
The recovery of expenses is a
Reimbursement
Disbursement
GST Treatment
In general, the recovery of the expenses from another party amounts to a supply unless the recovery is compensatory in nature and no goods or services are provided in return to the paying party. If the recovery of expenses amounts to a supply, it may be subject to GST or exempt from GST, as the case may be.
The recovery of expenses does not constitute a supply and will not be subject to GST.
Input tax claim
You are entitled to claim input tax incurred on goods or services procured by you if the subsequent recovery of such expenses constitutes a taxable supply.
You are not entitled to any input tax claim since the goods or services are not supplied to you but to your principal.
Please refer to the e-Tax Guide "GST: Guide on Reimbursement and Disbursement of Expenses" (1.1MB) for more information on:
The recovery of expense was previously considered a separate supply (i.e. a reimbursement) and subject to GST if it did not meet the following conditions for disbursements:
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If you have incurred the expense as a principal and you are not recovering the expenses as part of any primary supply to your customer, you must charge GST when you recover the amount if the recovery of expenses amounts to a standard-rated supply. It is your business decision on how much you value the supply made when you re-bill the invoice.
However, if you charge a mark-up, the GST treatment for the mark-up is based on the separate supply of service (e.g. arranging fees, administrative fees etc).
For more information, please refer to the e-Tax Guide “GST: Guide on Reimbursement and Disbursement of Expenses” (1.1MB)
You acquired the transport services as a principal in your own capacity and are legally obliged to pay the transport service providers. The services acquired are used directly in the course of performing your audit work. The recovery of these expenses from Company A is a reimbursement and is subject to GST.