Sarah Bradford outlines the exemption for paid and reimbursed expenses, and highlights some traps to avoid.
Employees often need to incur expenses to do their work. The employer may meet the expense directly or the employee may incur the expense from the outset and reclaim the amount back from the employer.
From a tax perspective, all expenses are not equal, and it is important that both employers and employees understand when expenses can be paid or reimbursed tax-free.
Exemption for paid and reimbursed expenses
The tax legislation contains a dedicated exemption for paid and reimbursed expenses. It applies where an employer pays or reimburses an expense and the employee would, if they met the cost themselves, be allowed a deduction for an amount that is at least equal to the amount paid or reimbursed by the employer. However, the exemption only applies