Tax Deductible Holidays
15/12/2014 by Bobbie Adams, Senior Accountant
Whilst you can generally claim a deduction for any business travel expense directly connected with your current employment, any travel that is for private purposes must be appropriately apportioned.
Business vs Private Travel
If you are planning to claim a conference in this year’s tax return, there must be a direct connection between your current employment and your work related activities at your destination. A tax deduction is permissible based on the purpose of the expenditure.
The Australian Tax Office (ATO) accepts there can be a private component to work related travel; however it must be incidental to the overall purpose. Sometimes determining what classifies as ‘incidental’ is difficult, as the purpose of the travel is often subjective.
Take for example Alexis, a massage therapist who travels to Bali to attend a three day massage conference and decides to spend an extra seven days relaxing with her family in Bali before returning home. She may be able to claim her airfare, as the primary purpose for her initial travel was to attend the work related conference. However, she would need to apportion her accommodation, meals and travel expenditure so that she is only claiming a tax deduction for the three day work related portion of her trip.
Contrast this with Andrew, a medical practitioner who is travelling to Europe on a holiday and decides to visit a number of cutting edge medical clinics whilst he is there. The ATO view in this instance will likely be if the work related portion was incidental to the private purpose of the trip, then a deduction is only allowable for those expenses directly attributable to the income earning purpose, such as accommodation and meals. This could result in no portion of Andrew’s airfare being tax deductible. However, if the private and income producing purpose for Andrew’s trip were equal, then 50% of the expenses incurred for both purposes could be deductible (so half the airfare could be claimed at tax time). Things become more complicated when the income producing portion is more than incidental but less than 50%, as expenses with a dual purpose are difficult to apportion.
The ATO has no concrete rules for apportioning work related expenses, however it’s important to remember that claiming on expenses does not necessarily relate to the days spent undertaking each activity.
What Expenses Can You Claim?
Usually the airfares to and from the location of a work related activity are fully tax deductible if the activity was the primary purpose of your trip. However, as detailed above if there is a dual purpose for your travel then apportionment of this cost is likely to be required.
To claim accommodation costs at a location, the work related activity must extend over at least two consecutive days. If you decide to tack on a holiday whilst you’re away, those extra costs are private and not tax deductible. So make sure all business related costs are clearly defined on your documentation.
Travel, Meals and Incidentals
Costs of travel, meals and incidentals for the days you attend a work related activity are tax deductible, however meals may be limited by the Commissioner’s reasonable amount for the relevant year. Deductible costs could include a seminar registration fee, taxi fare or car hire.
Deductions for visas, passports and travel insurance cannot be claimed in any circumstances.
Expenses For Relatives
Deductions are not normally allowed for the costs of an accompanying spouse and/or family member. However that rule is subject to an exception were a deduction will be allowed for the relative’s travel expenses if the relative is employed by you or by your employer, has performed substantial duties whilst away, and it is reasonable to conclude the relative would have travelled with you even if they were not related to you.
What Records Do I Need To Keep?
If your employer pays you a travel allowance for the days you are involved in a work related activity (such as a conference), and you do not plan to claim anything more than that allowance, you technically do not need to keep any receipts unless your trip lasts for more than six days. However, you may still need to prove that the expenses have been incurred and therefore it is the view of The Hopkins Group that it is still prudent to keep records of these costs.
Where your travel is for greater than six nights, you will need to keep a travel diary showing the dates travelled, places visited, the people you met with, times and duration of the activities or appointments and the purpose of the travel.
If you do not receive an allowance, or you spend over your allocated allowance amount, you must keep written evidence of all the expenses you wish to deduct (including a travel diary) if you are away for six days or more.
If you would like to discuss any of the topics raised in this article, or would like to speak with someone with regard to any accounting matter, please feel free to call our office on 1300 726 082 and ask to speak with an Accountant who will be able to assist.
• Income Tax Assessment Act 1997
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