Expense reimbursement is when a business repays an employee, contractor, or director for out-of-pocket expenses incurred during work.

Handled correctly, reimbursements aren’t treated as income, and no fringe benefits tax (FBT) applies. But without proper records, businesses risk ATO scrutiny and possible penalties.

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Common Examples of Reimbursed Expenses

• Work-related travel (flights, taxis, accommodation)
• Meals during business trips
• Office supplies or equipment paid personally
• Client meeting costs
• Phone or internet used for work

ATO Guidelines on Expense Reimbursements

To avoid tax issues:

• The expense must be directly work-related
• The original receipt or tax invoice should be kept
• A clear reimbursement policy should be in place
• The amount must match the actual cost (not estimated)

If these aren’t followed, payments could be classified as:

• Fringe benefits (triggering FBT)
• Or additional wages (affecting tax and super)

Reimbursement vs Allowance

Feature	Reimbursement	Allowance
Based on actual cost?	Yes	No — set amount given in advance
Requires receipts?	Yes	Not always
Taxable to employee?	No	Yes — included in income
ATO reporting	No PAYG/FBT if compliant	PAYG tax and STP reporting required

How to Process Reimbursements Properly

1. Create an expense policy (covering limits, categories, approvals)
2. Require original tax invoices or receipts
3. Use expense claim forms or apps
4. Record correctly in your accounting software (e.g., coded to “Reimbursements”)
5. Track FBT exposure (especially for directors or mixed-use items)

Digital Tools That Help

• Xero & MYOB: Capture receipts and automate approvals
• Ozobooks: Custom setup of workflows and reporting for reimbursements
• Dext or Hubdoc: Scan and attach invoices for faster processing

How Ozobooks Helps

• Creates or reviews your reimbursement policy
• Sets up systems to collect and store receipts
• Ensures tax-compliant treatment (no unintentional FBT or payroll issues)
• Streamlines tracking and approvals via cloud tools

FAQ

Q1: Do reimbursed expenses count as taxable income?
No, not if they are genuine repayments of work-related expenses.

Q2: Can directors be reimbursed too?
Yes, but documentation must be airtight — especially to avoid Division 7A or FBT implications.

Q3: What if no receipt is available?
The ATO may deny the deduction. Some policies allow small amounts without a receipt, but this must be documented clearly.

Q4: Can I reimburse an employee for travel using their own car?
Yes — but consider using the cents-per-kilometre method or tracking actual costs with logs.