Issue
Is the entity, a business operator, making a creditable acquisition that relates to a reimbursement of an employee's expenses in accordance with section 111-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it pays a travel allowance to an employee based on a per diem rate?
Decision
No, the entity is not making a creditable acquisition that relates to a reimbursement in accordance with section 111-5 of the GST Act when it pays a travel allowance to an employee based on a per diem rate as the entity is paying the employee an allowance.
Facts
The entity is a business operator. The entity pays a travel allowance to an employee who incurs expenses in the course of their duties as an employee.
The entity and the employee agree on the amount of travel allowance to be paid and this amount is based on a per diem rate (i.e. based on a standard daily amount).
The entity does not require the employee to repay any amount of the travel allowance that the employee does not spend.
The entity is registered for goods and services tax (GST).
Reasons for Decision
Creditable acquisitions that relate to reimbursements of employee expenses are set out in section 111-5 of the GST Act.
Subsection 111-5(1) of the GST Act provides that, in certain circumstances, where an entity reimburses an employee, an associate of an employee, an agent, partner or company officer for expenses incurred in relation to the performance of their duties, the entity can claim an input tax credit as if the entity itself had incurred the expense.
The entity pays a travel allowance to one of its employees and this amount is based on a per diem rate. The entity does not require the employee to repay any amount of the travel allowance that the employee does not spend.
The payment of the travel allowance is the payment of a set amount that has been agreed upon by both the entity and the employee. The employee is paid the agreed amount, regardless of the actual cost of the expense. As such, the entity's payment of the travel allowance is the payment of an allowance and not the reimbursement of an expense and as such, the circumstances outlined in subsection 111-5(1) of the GST Act do not apply.
Therefore, the entity is not making a creditable acquisition that relates to a reimbursement in accordance with section 111-5 of the GST Act when it pays a travel allowance to an employee based on a per diem rate.