Essential GST Guide: Understanding the Recovery of Expenses (Reimbursements)
Nov 17, 2025
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For GST-registered businesses, correctly accounting for Goods and Services Tax (GST) when recovering expenses from third parties, particularly related companies or customers, is a common compliance challenge. This is the first part of our series clarifying the rules, focusing on reimbursements that are separate from a primary supply.
The Fundamental Distinction: Reimbursement vs. Disbursement
Before you apply any GST treatment, the critical first step is to determine the nature of the recovery:
Type of Recovery | Role of Your Business | GST Treatment |
Reimbursement | Principal (Contracted directly with the supplier in your own capacity) | May be subject to GST, as it is treated as a supply of goods or services from your business. |
Disbursement | Agent (Paid for goods/services on behalf of another party, not a party to the contract) | Not subject to GST, as it is merely a recovery of money paid on their behalf. |
Rule for Reimbursement: When Recovery is Not Ancillary
When you recover an expense as a reimbursement and it is separate (i.e., not incidental) to any main supply of goods or services you are making, the GST treatment must be assessed on its own merits, as your business is now the supplier.
Expense Recovery Scenario | GST Treatment for Recovery |
At Cost or With Mark-up | The GST treatment of the recovery generally mirrors the tax treatment of the original purchase. If the original item (e.g., local office supplies) was standard-rated, your recovery is also standard-rated. |
Exception (Change in Supplier) | You must consider the nature of the supply you are making. For example, if you recover bank charges, which are typically exempt when provided by a bank, your recovery of the fee from a customer is generally a taxable supply unless your business is also a bank. |
With Mark-up | Any mark-up (e.g., an administrative or arranging fee) is treated as a separate supply of service and must be assessed for GST accordingly (usually standard-rated). |
Recovery of Exempt Supplies | The recovery is exempt only if it falls under the specific description of an exempt supply listed in the GST Act's Fourth Schedule. |
Key Scenario for GST Application
The application of this rule can be complex. Let's examine common mistakes using the case of ABC Service Pte Ltd, which procures items as a principal for its related companies.
Scenario: Calculating GST on the Recovery Value
The Question: If a courier company charged ABC a total of $1,090 (comprising $1,000 cost + $90 GST), should ABC charge GST on the original cost ($1,000) or the full amount inclusive of GST ($1,090) when recovering the expense?
The Answer: Both are acceptable as it is a business decision. ABC can charge GST on a base value of $1,000 or $1,090. The key is to apply the correct GST rate (9%) to the chosen value to determine the final selling price to the customer.
Conclusion
Ensuring correct GST treatment for expense recovery begins with accurately classifying it as a reimbursement or disbursement. When it is a reimbursement separate from a primary supply, remember that your business becomes the supplier, and the nature of the supply you are making—not just the original GST status—determines the correct tax treatment.
Need Tailored GST Guidance? Simplify your compliance journey. Our team at CR Consultancy Pte Ltd is dedicated to helping SMEs avoid costly GST errors. Contact us for professional support designed specifically for your business needs.
Disclaimer: This article is for general information only and should not be relied upon as professional tax advice. For official guidance, please refer to the IRAS website.
