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Best practices and tips on spend management, automated expense tracking and corporate debit cards for Australian SMB and enterprise businesses.
Tis the silly tax season! Navigating the tax rules surrounding reimbursements can be, lets just say at best – a little complicated. Read on for a roadmap on making your EOFY 2024 tax processes easier.
In the dynamic landscape of Australian business, understanding the tax implications of employee reimbursements is crucial for both employers and employees.
Reimbursements are common in business operations, covering expenses such as travel, meals, accommodation, and other work-related costs.
However, navigating the tax rules surrounding these reimbursements can be complex, impacting financial planning and compliance.
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The FINE PRINT - This blog is not financial or taxation advice, please consult a taxation professional in regards to your business tax decisions. |
So let’s break it down!
The basics of employee reimbursements
Employee reimbursements occur when an employer repays an employee for expenses incurred on behalf of the company. These can include business travel, purchase of office supplies, or client entertainment costs.
While these reimbursements are generally non-taxable to the employee, provided they are strictly work-related, there are specific regulations set by the Australian Taxation Office (ATO) that must be adhered to.
| 💡 DID YOU KNOW? As an employer, you're entitled to a GST credit when you reimburse an employee for a taxable expense that is directly related to your business activities. |
Fringe Benefits Tax (FBT)
One significant aspect to consider is Fringe Benefits Tax (FBT). This tax is levied on non-salary benefits provided to employees, and it can include certain reimbursements.
For instance, if an employer reimburses an employee for personal expenses, this might attract FBT. The rate of FBT is quite high, currently standing at whopping 47%, which can significantly impact a company's financials if not properly managed.
The impact of travel and meal reimbursements
Travel and meal reimbursements are two common areas where tax implications need careful attention.
According to the ATO, travel expenses that are directly related to business activities can be reimbursed without attracting FBT, provided they meet specific criteria.
However, any portion of the trip that is for personal enjoyment could be subject to FBT. Similarly, meal reimbursements are generally non-taxable if they are part of a work-related travel itinerary.
Trends in employee reimbursements
In recent years, there has been a noticeable shift in how businesses handle reimbursements. With the rise of remote work, more companies are reimbursing home office expenses.
According to a survey by the Australian Bureau of Statistics, nearly 40% of Australians were working from home regularly in 2023.
This trend has led to an increase in reimbursements for home office setups, internet, and utility costs.
On top of that, as businesses strive to attract and retain top talent, there has been a rise in the provision of wellness benefits, including reimbursements for gym memberships and wellness programs. These benefits can attract FBT unless specifically exempted under ATO guidelines.
Key things to consider as employers
To effectively manage the tax implications of employee reimbursements, you should:
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Maintain detailed records: Accurate and detailed record-keeping is essential. This includes keeping receipts, travel itineraries, and justifications for the expenses.
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Understand ATO guidelines: Staying updated with ATO guidelines ensures compliance. The ATO frequently updates its rules, and businesses must adapt accordingly.
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Seek professional advice: Consulting with tax professionals can help navigate complex scenarios, particularly with fringe benefits and mixed-purpose expenses.
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Automate expense management: Utilise automated apps and accounting software to simplify expenses and ensure accurate reporting. This will also make the GST tracking process more efficient and reduce the risk of errors.
Final thoughts to ponder…
Employee reimbursements are still an integral part of modern business operations, offering flexibility and support to employees.
However, understanding and managing their tax implications is essential to avoid unnecessary tax liabilities and ensure compliance with ATO regulations.
As the business environment continues to evolve, particularly with the increasing prevalence of remote work and wellness initiatives, staying informed about the latest trends and tax rules will be crucial for both employers and employees in Australia.
Introducing Budgetly: The smart solution to automating expense management
Budgetly is an innovative, all-in-one expense management platform designed for businesses across all industries. With Budgetly’s business debit card, you can say goodbye to costly, time-consuming, and outdated practices like manual employee reimbursements.
Budgetly auto extracts the GST from every receipt uploaded via the app, for highly accurate and fast GST tracking.
The platform allows you to empower your employees to easily upload their expense receipts and automates expense categorisation, ensuring that all expenses are accurately recorded and GST is tracked correctly.
By integrating with Xero or your accounting software, Budgetly automates the GST extraction process, making it faster and easier; plus it helps your business claim tax credits more efficiently.
Sounds too good to be true? Schedule a demo with us today, or watch a 10-minute recorded demo.
