Reimbursement vs. Disbursement
Reimbursement and disbursement are two terms that are often used interchangeably, but they actually have different meanings.
Reimbursement is the act of paying back someone for money that they have spent on your behalf. For example, if you travel on business and incur expenses, your employer may reimburse you for those expenses.
Disbursement is the act of paying out money, usually for a specific purpose. For example, a company may make a disbursement to pay for employee salaries or to purchase inventory.
The main difference between reimbursement and disbursement is that reimbursement is a payment that is made in return for something, while disbursement is a payment that is made for a specific purpose.
In terms of accounting, reimbursements are recorded as liabilities, while disbursements are recorded as expenses. This is because reimbursements are expected to be repaid, while disbursements are not.
Here is a table that summarizes the key differences between reimbursement and disbursement:
A payment made in return for something
A payment made for a specific purpose
May be subject to tax
Not subject to tax
Travel expenses, meal expenses, entertainment expenses
Employee salaries, rent, utilities, inventory
GST Treatment of Recovery of Expenses
The GST treatment of recovery of expenses depends on whether the recovery is:
Ancillary to or forms inputs to a primary supply of goods or services.
A separate recovery for costs of goods and services procured.
If the recovery of expenses is ancillary to or forms inputs to a primary supply of goods or services, the GST treatment of the recovery will follow that of the primary supply. For example, if you incur the cost of printing brochures as part of your primary supply of advertising services, the recovery of the printing costs will be subject to GST at the same rate as the advertising services.
If the recovery of expenses is a separate recovery for costs of goods and services procured, the GST treatment of the recovery will be assessed on its own. In this case, you will need to determine the nature of the supply that you are making when you recover the expenses. For example, if you recover the cost of airfare from a client, you will need to determine whether you are making a supply of travel services or a supply of administrative services.
If you charge a mark-up on the recovery of expenses, the mark-up will be treated as a separate supply of services. For example, if you charge a 10% mark-up on the recovery of the cost of airfare, you will need to account for GST on both the cost of the airfare and the 10% mark-up.
Input tax claim
If you recover expenses that you have incurred as a principal, you will be entitled to claim input tax on the expenses. However, if you recover expenses that you have incurred as an agent, you will not be entitled to claim input tax on the expenses.
For more information on the GST treatment of recovery of expenses, please refer to the IRAS e-Tax Guide "GST: Guide on Reimbursement and Disbursement of Expenses".
Here is an additional point to keep in mind:
The GST treatment of recovery of expenses may change if the nature of the supply changes. For example, if you recover the cost of airfare from a client and you originally treated the recovery as a supply of travel services, you may need to change the treatment if the client changes the purpose of the airfare (e.g., from business to personal).
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I hope this helps! Let me know if you have any other questions. If you are unsure about the GST treatment of a particular recovery of expenses, you should contact our accountants or tax advisors.