How to Handle GST on Employee Reimbursements (NZ)

The Golden Rule

To claim GST on a reimbursement, the expense must be for a taxable activity of the business, and you must hold a valid Tax Invoice from the original supplier.

Reimbursements vs Allowances

How Reimbursements Reach the Employee

Reimbursements are normally paid through payroll, added to the employee's net pay after PAYE has been taken out. Pay as you earn (PAYE) is the income tax your payroll software deducts from wages before staff receive them.

You can pay a reimbursement in two ways. The employee can hand in receipts for what they spent, or you can make a reasonable estimate of the employment cost. If you pay back more than the actual cost, the extra is treated as wages and PAYE applies to the difference. IRD guidance on employee allowances sets out this treatment.

Keep every reimbursement record for seven years in English, as required by the Tax Administration Act 1994, so an IRD review can trace each payment back to its invoice.

Documentation Requirements

From 1 April 2023, taxable supply information rules apply. For purchases of $200 or less (including GST), basic records (supplier name, date, description and total) are enough. For purchases over $200, you need fuller taxable supply information to claim the GST. The business should always keep a record of the purchase.

• ✓ Collect original tax invoices from employees.
• ✓ Ensure the invoice is made out to the business (for amounts over $1,000).
• ✓ Link the reimbursement to a specific business project or office need.

What a Tax Invoice Must Show

For IRD to accept your GST claim on a reimbursement, the records behind it must meet the taxable supply information rules in effect from 1 April 2023. For supplies of $200 or less, the records need only the supplier name, date, description and total; over $1,000, buyer details are also required.

If the supplier is not GST registered, the price contains no GST and there is nothing to claim, except that a secondhand goods input tax credit of 3/23 of the price may be claimable where the goods are acquired for the business (GST Act sections 20(3) and 3A(2)). Online marketplace purchases from private sellers often fail on this point. Keep the invoices for seven years in English under the Tax Administration Act 1994, linked to the reimbursement payment that repaid them.

Common Examples

Is it a valid claim?

• 📱 Work Phone: Valid claim if used for business. Pro rata if mixed use.
• ☕ Staff Lunch: Entertainment rules apply (usually 50% GST claimable).

Meals on Work Travel: The 100 Percent Rule

Meals you reimburse while an employee is travelling on business are fully deductible, so the full GST is claimable, unlike entertainment spending which is limited to 50 percent. This is the distinction most employers get wrong.

A lunch near the normal workplace sits in the 50 percent entertainment bucket, but meals while the employee is away from their usual workplace are 100 percent deductible because they are a genuine cost of the travel. For the employee, reimbursed meal costs are exempt income, which is income they do not pay tax on, under section CW 17CB of the Income Tax Act 2007, with the tax free treatment capped at three months under section CW 17CB(5). Light refreshments such as tea, coffee and snacks are covered the same way, and overtime meals have their own rule in section CW 17C. IRD set out these rules in interpretation statement IS 21/06, issued 7 July 2021. These meal rules apply for the 2026/27 tax year.

Note that an ordinary reimbursed private lunch near the normal workplace is taxable income to the employee, not exempt, so the exempt income treatment above applies only to genuine travel meals.

The Entertainment GST Adjustment

If you claim GST on entertainment such as client dinners or staff parties, only the $30 GST adjustment goes in the GST return (for the GST period in which the income tax return is filed or due, whichever is earlier); the $200 cost add back goes in the income tax return under the 50 percent deduction limit in section DD 1 of the Income Tax Act 2007. Entertainment expenditure is spending on food, drink and social events that has only a partial business purpose.

Claim the full GST when the bill arrives, then add back the nondeductible half. Example: a client dinner costs $460 GST inclusive, which is $400 GST exclusive plus $60 GST. The nondeductible half is $200 of cost plus $30 of GST. The GST add back is 15 percent of the GST exclusive nondeductible amount ($200 x 15 percent = $30), equivalently 3/23 of the GST inclusive nondeductible amount ($230 x 3/23 = $30). The $200 cost add back goes in the income tax return, and the 50 percent entertainment portion is not subject to fringe benefit tax (FBT), which is the tax employers pay on perks given to staff.

One FBT exception to note: FBT is payable if the employer provides the 50 percent deductible entertainment and the employee can choose when and where to enjoy the benefit, or it is enjoyed outside New Zealand and outside employment duties.

Phones, Internet and Working From Home

You cannot claim GST on flat EE004 phone or home working payments, because those are employment payments with no supplier invoice behind them. You can claim the GST on the business portion when you reimburse the actual supplier bill and hold the original invoice.

Inland Revenue determination EE004, applying from 1 April 2023, sets the tax free limits an employer can pay. The safe harbour amounts need no evidence: $20 per week for working from home costs and $7 per week for personal telecommunications tools and usage plans. Where the phone and plan are used principally, which means mainly, for work, you can reimburse up to 75 percent of the actual bill tax free, supported by usage evidence or a signed declaration from the employee. Telecom bills top out at 75 percent; the 100 percent rate applies to assets and equipment.

Two traps to avoid. First, employees cannot deduct work expenses against their salary on an IR3 in New Zealand, so employer reimbursement is the only route. Second, you cannot pay the safe harbour and a percentage reimbursement for the same employee at the same time, or the excess becomes taxable. IRD published determination EE004 under section 91AAT of the Tax Administration Act 1994 and section CW 17 of the Income Tax Act 2007. If your business is not yet registered for GST, none of these GST claims arise until registration takes effect.

Home Office Furniture and Equipment

The employer can claim GST on the business portion of reimbursed home office furniture or equipment where it holds taxable supply information (invoices, receipts) for the purchase, per IRD's Employer's guide. The claim is based on the work use of the asset, so keep evidence of the cost and the business proportion on file.

The tax free reimbursement for the employee is based on the yearly depreciation loss they could claim on the asset, or the purchase cost for low value assets of $1,000 or less bought from 17 March 2021. IRD allows a safe harbour of up to $400, a one off total per category rather than per item or annual, with no evidence required, or 25 percent, 75 percent or 100 percent of the loss depending on how much the item is used for the job, with evidence of the cost and the work use kept on file.

Reimbursement Claim Rules

Expenses That Carry No GST Claim

No GST can be claimed on a reimbursement where the underlying expense never carried GST in the first place. Watch for these common cases:

• Wages, salaries and bonuses. These are taxed through PAYE, not GST, so there is nothing to claim.
• Bank fees and loan interest. Financial services are exempt from GST.
• Residential rent. It is exempt from GST, unlike commercial rent.
• Donations to registered charities. A donation receipt is not a tax invoice and carries no GST.
• Secondhand goods bought from private sellers. If the seller is not GST registered, their price includes no GST to claim, except that a secondhand goods input tax credit of 3/23 of the price may be claimable where the goods are acquired for the business (GST Act sections 20(3) and 3A(2)).
• Imported goods where GST was paid at the border to New Zealand Customs. This GST is claimed through the import paperwork, not through the employee's receipt.

Worked Example: A Month of Reimbursements

Put the rules together for one month at a Christchurch plumbing firm with two staff on the road.

• An apprentice buys $1,150 of tools, GST inclusive, invoiced to the business. GST claim: $150, found by multiplying $1,150 by 3 and dividing by 23.
• A client dinner costs $460, GST inclusive. The full $60 of GST is claimed now, and $30 is added back at year end under the 50 percent entertainment rule.
• A technician's phone bill is $80 and the phone is used principally for work. The firm reimburses $60 tax free under EE004. Where the employer reimburses part of an actual invoice and holds the invoice, even if it is addressed to the employee, it can claim input tax on the reimbursed business portion. Correct treatment: on the $60 business portion (75 percent of the $80 bill under EE004), the firm can claim $60 x 3/23 = $7.83 GST if it holds the invoice.
• A night away in Dunedin: motel $230, GST inclusive, plus a $115 travel dinner. The meals are 100 percent deductible travel costs, and the GST claim on the motel and dinner together is $45.

Total GST claimed for the month: $255, with a $30 entertainment adjustment to make at year end.

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