We can all agree that whenever we get to travel overseas for business or work purposes, we would like to take the opportunity to add on a little recreation. If you’re worried that it affects the overall deductibility of your expenses, read on.
Holiday, Work or Mixed travel?
To claim a tax deduction the primary purpose of the travel should be directly connected to you developing your professional and business capability and experience (e.g., attending seminars, work tours, or conferences). Since most of us tend to mix business and leisure when travelling overseas, we present this basic rule: overseas costs are deductible to the extent they are incurred for the purpose of earning income. Again, the primary purpose determines the deductibility of the expenses. When there is little to no connection between the travel and the expense, the ATO deems this as a private holiday and therefore non-deductible. Your receipts and travel diary are your friends when it comes to this! (And the latter is required if you are away from home for six or more nights in a row.)
Common expenses and their deductibility
Typical expenses associated with overseas travel include airfares, accommodation and incidentals (meals and local travel). So which ones can you claim?
- Airfares – when the main purpose of the travel is for business/professional development, most likely 100% of the airfare will be deductible, otherwise, apportionment of the expense will be required.
- Accommodation – this needs to be apportioned between the time you spent doing business and the time you spent for private leisure.
- Travel, meals and other incidentals – car hire, bus and train rides, uber and taxis, used on the days you attended business-related activities, including the meals you eat (although meals have some caveats as to its deductibility), are claimable.
Classic example 1 – additional days spent
Roger flew to Vancouver for a 5-day seminar but had his return flight scheduled after 7 days. All the 7 days was spent in a hotel as he has no relatives in the area. In his case, 100% of flights is claimable, as the main purpose of the travel is business-related. However, only his accommodation expenses in relation to the 5 day seminar is deductible.
Classic example 2 – travelling with a spouse
Barry went on a business trip to Birmingham with his wife, Maureen, for 10 days. In their case, all the expenses in relation to Maureen can be deductible only if Barry can show that Maureen is involved in the business (regardless of relationship to Barry). Otherwise, her portion of the expenses will not be deductible. This rule also applies to other relatives tagging along your business travels.
Classic example 3 – refined taste
Andy prefers to fly business class and stay in luxurious hotels. Despite their expensive nature, the ATO does not disallow (nor limit) the amount of expense. They only determine the tax consequences of the spending, not on how much you should have spent. Therefore, Andy can continue enjoying the finer lifestyle.
Keep your records
Remember, before you go travelling internationally, you need to bare in mind to keep all your records before, during, and after your trip (i.e., receipts and invoices, correspondence with travel agencies and work colleagues) and consider if you need a travel diary. If you have any questions and/or need more information concerning overseas travel and expense deductibility, you may contact us as (07) 5451 1118.