Private ruling: GST and reimbursement of employee's expense in purchasing laptop
Date of advice: 18 December 2015
Published: March 2016

Ruling: Q1: Are you entitled to an input tax credit where you reimburse an employee for their cost of purchasing a laptop as part of a salary sacrifice arrangement? | A1: Yes, under the circumstances you have set out.

Relevant facts and circumstances: You are registered for GST. You carry on a finance broking business. You sell the lenders' products to the customers for which you earn commission from the lenders. Sales consultants get customers to fill out documents and then supply them to one of the various lenders who then supply finance to the customer. You have a salary sacrifice arrangement with an employee. Under that arrangement, you reimburse the employee for the cost of purchasing a laptop. The sale of the laptop to the employee is subject to GST. The employee will use the laptop mainly (more than 51%) for the purposes of their duties as your employee. The only other purpose for which they may use the laptop is their own private purposes. The employee is registered for GST.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 section 11-5 | A New Tax System (Goods and Services Tax) Act 1999 section 11-15 | A New Tax System (Goods and Services Tax) Act 1999 section 11-20 | A New Tax System (Goods and Services Tax) Act 1999 section 40-5 | A New Tax System (Goods and Services Tax) Act 1999 Division 69 | A New Tax System (Goods and Services Tax) Act 1999 section 71-5 | A New Tax System (Goods and Services Tax) Act 1999 Division 111 | A New Tax System (Goods and Services Tax) Act 1999 section 195-1 | Fringe Benefits Tax Assessment Act 1986 section 58X

Reasons for decision: Summary: In accordance with Division 111 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) (which provides a special rule for reimbursement of employee expenses) you are treated as having made an acquisition from the employee and the reimbursement is treated as being consideration for that deemed acquisition. You are entitled to an input tax on this deemed acquisition because • you made the deemed acquisition for a creditable purpose; and • the reimbursement is treated as being consideration for this deemed acquisition; and • you are registered for GST, and • the supply to the employee was a taxable supply; and • the exclusions in paragraphs 111-5(3)(a) and 111-5(3)(c) of the GST Act do not apply. | Detailed Reasoning - Reasons for decision: You are entitled to input tax credits on your creditable acquisitions. You make a creditable acquisition where you meet the requirements of section 11-5 of the GST Act, which states: You make a creditable acquisition if: (a) you acquire anything solely or partly for a *creditable purpose; and (b) the supply of the thing to you is a *taxable supply; and (c) you provide, are liable to provide, *consideration for the supply; and (d) you are registered or required to be registered. (*Denotes a term defined in the GST Act) One of the requirements for making a creditable acquisition is that you make an acquisition. If one or both of the following applies: • an employer reimburses an employee for an expense that he or she incurs that is related directly to his or her activities as the employee, or • the employer reimburses an employee for an expense that they incur and the reimbursement is an expense payment benefit as defined in the GST Act, the reimbursement is treated as being consideration for an acquisition that the employer makes from the employee (in accordance with section 111-5 of the GST Act). An expense payment benefit as defined in the GST Act is a fringe benefit (as defined in the GST Act) that is a benefit of a kind referred to in section 20 of the Fringe Benefits Tax Assessment Act 1986 (FBTA Act). A fringe benefit for the purposes of the GST Act has the meaning given by section 995-1 of the ITAA 1997 but includes a benefit within the meaning of subsection 126(1) of the FBTA Act that is an exempt benefit for the purposes of that Act. In the circumstances you set out, you will reimburse an employee for the cost they incur in purchasing a laptop as part of a salary sacrifice arrangement. The reimbursement is of an expense that the employee incurs that is related directly to their activities as your employee. Additionally, the reimbursement constitutes an expense payment benefit for the purposes of the GST Act. Therefore, the reimbursement is treated as consideration for an acquisition that you make from the employee. Creditable purpose Section 11-15 of the GST Act set out the circumstances in which an acquisition is made for a creditable purpose. Subsection 11-15(1) of the GST Act states: You acquire a thing for a creditable purpose to the extent that you acquire it in *carrying on your *enterprise. Subsection 11-15(2) of the GST Act states: However, you do not acquire the thing for a creditable purpose to the extent that: (a) the acquisition relates to making supplies that would be input taxed; or (b) the acquisition is of a private or domestic nature. Your deemed acquisition of the laptop should be treated as having been made in carrying on your enterprise as the laptop is used in undertaking tasks involved in carrying on your enterprise and this will be the main use. Additionally, this deemed acquisition does not relate to making supplies that would be input taxed and the deemed acquisition is not of a private or domestic nature. Therefore, you have made the deemed acquisition for a creditable purpose. Taxable supply Subsection 111-5(2) of the GST Act states that the fact that the deemed supply to the employer is not a taxable supply does not stop the deemed acquisition from being a creditable acquisition. Therefore, the fact that the deemed supply made to you is not taxable (as the deemed supply is not made in the course or furtherance of an enterprise that the employee carries on) will not prevent you from being entitled to an input tax credit on the deemed acquisition. Consideration The reimbursement is treated as consideration for a supply made by the employee to you. Therefore, the requirement of paragraph 11-5(c) of the GST Act is met. GST registration You are registered for GST. Therefore, the requirement of paragraph 11-5(d) of the GST Act is met. Special requirements for an input tax credit to arise under Division 111 of the GST Act Subsection 111-5(3) of the GST Act provides that an acquisition is not a creditable acquisition under Division 111 of the GST Act: (a) to the extent (if any) that: (i). the employee is entitled to an input tax credit for acquiring the thing acquired in incurring the expense; or (ii).the acquisition would not, because of Division 69 of the GST Act, be a creditable acquisition if the employer had instead made the acquisition; or (b) unless the supply of the thing acquired by the employee in incurring the expense is a taxable supply; or (c) if the employer would, because of Division 71 of the GST Act, not have been entitled to an input tax credit if the employer had instead made the acquisition that the employee made. Your employee is not entitled an input tax credit on its acquisition of the laptop because they have not acquired it for use in their own business. Division 69 of the GST Act deals with certain specific types of expenses, for example, entertainment expenses and non-compulsory uniform expenses. Division 69 of the GST Act is not relevant to laptop expenses. Division 69 of the GST Act would not have prevented you from being entitled to an input tax credit on your purchase from the third party supplier if you had made the acquisition from the third party. The supply of the laptop to the employee was a taxable supply for GST purposes. Subsection 71-5(1) of the GST Act states: An acquisition that solely or partly relates to making supplies that are *input taxed is not a *creditable acquisition if: (a) the acquisition would (but for this section) be an acquisition of a kind referred to in paragraph 149(2)(b) of the Fringe Benefits Tax Assessment Act 1986 ; and (b) the acquisition specifically relates to the provision of a particular benefit (within the meaning of that Act) in respect of which *fringe benefits tax is or will be payable. Subsection 71-5(2) of the GST Act states: However, this section does not apply to an acquisition if; (a) the only reason it relates to making supplies that are *input taxed is because it relates to making *financial supplies; and (b) you do not exceed the financial acquisitions threshold. An acquisition of a kind referred to in paragraph 71-5(1)(a) of the GST Act is any creditable acquisition under the GST Act. If you had acquired the laptop from the computer retailer, this acquisition would not have related to input taxed supplies made by you . You do not make input taxed supplies (for example, supplies of loans). The fact that the lenders make input taxed supplies is not relevant to the determination of whether section 71-5 of the GST Act applies to you. Therefore, section 71-5 of the GST Act would not have applied if you had instead purchased the laptop from the computer retailer and on-supplied it to your employee. Hence, paragraph 111-5(3)(c) of the GST Act does not prevent you from being entitled to an input tax credit. Conclusion As: • the requirements of paragraph 11-5(a), paragraph 11-5(c) and paragraph 11-5(d) of the GST Act are met; and • (due to the operation of Division 111) there is no need for the deemed supply that is made to you to be taxable; and • the supply to the employee is a taxable supply, and • the exclusions at paragraphs 111-5(3)(a) and 111-5(3)(c) of the GST Act do not apply, you are entitled to an input tax credit on your deemed acquisition from the employee for which the reimbursement is consideration. The input tax credit is 1/11 th of the amount of the reimbursement. You will need to hold the tax invoice that was issued by the computer retailer.