The Key to Tax Deductible Business Travel
The Australian Taxation Office’s position is that the cost of a business owner attending an overseas conference is tax deductible – as long as the conference is related to deriving assessable income from an existing business activity.
Purpose determines deductibility. If the purpose of a trip is to do business better, then the trip is work-related. How do you prove purpose? Paper, or an equivalent digital record, proves purpose. Contemporaneous documents (ie documents that were created at the appropriate time) are best. It starts with the e-mail to the travel agent, includes diary notes, brochures, conference papers, and ends with a better knowledge and understanding of your industry or profession.
There are no stand out tax cases dealing with deductible overseas travel, in the sense of a coherent, complete and compendious explanation of the major issues. It’s more an ad hoc collection of tribunal rules, public and private statements by the ATO and comments by learned authors. The major points include:
- overseas travel of any duration requires written evidence;
- overseas travel with 6 or more nights in a row requires a travel diary or an equivalent record;
- if your travel has a private purpose, ‘apportionment’ between deductible business costs and non-deductible private costs may be required, based on your specific facts. For example:
- if you spend a week at a conference in Paris and a week on the French coast sun-baking only half your costs, ie 7 days out of 14, will be deductible. However,
- if you spend a weekend walking around Paris, a work week at a conference, the next weekend on the French coast sun-baking, and then travel to London to visit three businesses like yours over five days all your costs, ie 14 days out of 14, will be deductible. The weekend sun-baking and the down time between London medical facility visits does not impact the overall deductibility of your travel.
You are allowed to enjoy yourself while you work and after you knock off for the day. The ATO cannot unilaterally reduce your deduction to its preferred level of frugality. Business class air fares and five star hotels are fine. The ATO is charged with determining how much you incurred, not how little you could have incurred to achieve the same results.
Accompanying partners or others who are not involved in the business can be a problem. For these people, some costs, such as accommodation and car hire, remain effectively deductible. This is because the business traveller pays them for himself or herself anyway – the second person simply uses the same service that the business traveller needs to have bought anyway. But extra costs, such as the extra air fare/s and similar direct costs are probably not deductible – unless the partner is also involved in the business and has a legitimate business reason to make the same trip
You may also be interested in our upcoming webinar on Getting Ready for Tax Time coming later this month.
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