As a business owner or employee, understanding what travel expenses are tax-deductible can significantly impact your financial planning. The general rule is that you can claim deductions for expenses if you or your employee are travelling for business purposes. This article delves into the specifics of claiming overseas travel expenses on your tax return, providing clear guidelines and examples to help you maximize your deductions while staying compliant with tax regulations.
What Travel Expenses Can You Claim?
Your business can generally claim deductions for travel expenses directly related to business activities. These expenses can arise from same-day trips, overnight stays, or extended periods. The following expenses are commonly deductible:
- Airfares: The cost of flights for business travel.
- Train, Tram, Bus, Taxi, or Ride-Sourcing Fares: Transportation costs incurred during business trips.
- Car Hire Fees: Including fuel, tolls, and parking when using a hire car for business purposes.
- Accommodation: Costs associated with lodging during overnight business trips.
- Meals: If you are away overnight for business purposes.
To claim overnight travel expenses, you must maintain a permanent home elsewhere, and your business activities must necessitate staying away from home overnight. If you are entitled to GST input tax credits, remember to claim your deduction in your income tax return at the GST exclusive amount.
What Travel Expenses Are Non-Deductible?
It’s crucial to understand which expenses cannot be claimed to avoid potential issues with your tax return. You can only claim the business portion of travel expenses. Any private expenses must be excluded. These include:
- Combined Business and Leisure Trips: If you combine a holiday or visit to family or friends with business travel, only the business portion is deductible.
- Family Member Expenses: Expenses associated with a family member accompanying you or your employee on the trip are not deductible.
- Personal Purchases: Souvenirs, gifts, sightseeing, and entertainment costs are considered personal expenses and cannot be claimed.
- Travel Documents: Visas, passports, and travel insurance are generally not deductible.
- Relocation or Living Away from Home: Travel expenses incurred due to relocation or living away from home are not deductible.
- Pre-Business Travel: Travel undertaken before you started running your business cannot be claimed.
How to Claim Employee Travel Expenses
If your employees travel for your business, your business can claim a deduction for the travel expense only if the business actually pays for it. This can be done by:
- Direct Payment: Paying directly for the expense from the business account.
- Travel Allowance: Providing a travel allowance to the employee.
- Reimbursement: Reimbursing the employee for their expenses.
Be aware that Fringe Benefits Tax (FBT) may apply if your business pays for or reimburses your employees for their travel expenses. However, certain exemptions and concessions may reduce your FBT liability. For example, no FBT liability arises if you reimburse an employee for attending a work conference and they could have claimed an income tax deduction if you hadn’t reimbursed them.
If an employee extends their travel for private purposes and you reimburse those costs, you will be liable for FBT. You may need records from the employee in such cases. If you’re a company director and your business pays for the private portions of your travel expenses, Division 7A implications may also arise.
The Importance of a Travel Diary
Maintaining accurate records is essential when claiming travel expenses, especially for overseas trips. For sole traders and partners in a partnership, a travel diary is compulsory for recording overnight business travel expenses. While not mandatory for companies and trusts, it’s highly recommended to help differentiate between business and personal expenses.
A travel diary should include:
- What the activity was
- The date and approximate time the business activity began
- How long the business activity lasted
- The name of the place where the business activity occurred
The diary can be in any format, as long as it contains sufficient detail to justify your claims.
Travel Diary Example: Rebecca’s Trip to the Chelsea Flower Show
Rebecca, a sole trader landscape gardener, attends the Chelsea Flower Show in England. The show involves six days of work. She spends additional time sightseeing with her son James, who is not involved in the business.
Rebecca’s Travel Diary:
- May 9: Flight Q13 to London via Dubai at 10:00 AM.
- May 10: Arrive in London at 1:00 PM. Bus to hotel in Chelsea at 3:00 PM.
- May 11: Rest day.
- May 12: Chelsea Flower Show set-up day from 9:00 AM.
- May 13-17: Chelsea Flower Show days 1-5 (ends 5:00 PM on May 17).
- May 18-19: Sightseeing in London and Oxford.
- May 20: Flight Q23 to home at 6:00 PM from London. Arrive at 10:00 PM local time.
Rebecca can claim:
- Return airfare to London (primary purpose is business).
- Bus fares to and from the airport.
- Costs associated with the Chelsea Flower Show, including the exhibitor’s fee and transport to the location.
- Accommodation in Chelsea up to and including May 17.
- Meals and incidental costs on the days she attended the Chelsea Flower Show.
Rebecca cannot claim:
- Accommodation, meals, or transport expenses on sightseeing days.
- Private costs like souvenirs.
- Costs of visas, passports, or travel insurance.
- James’s expenses (airfares, meals, or hotel).
Travel Diary Example: Noah’s Interior Design Project in Broome
Noah, a sole trader interior designer, flies to Broome for a two-week project. He spends a weekend sightseeing and visiting friends.
Noah’s Travel Diary:
- Sunday: Fly to Broome (depart 4:00 PM, arrive 6:30 PM).
- September 2: Purchase decorating supplies 9:00 AM–10:30 AM. Working at client’s house 10:45 AM – 4:00 PM.
- September 3-6: Working at client’s house 7:30 AM to 4:00 PM.
- Saturday: Day trip to Horizontal Falls. Dinner with Pam and Geoff.
- Sunday: Sightseeing around Broome.
- September 9-13: Working 7:30 AM to 4:00 PM at client’s house.
- Saturday: Return flight to Perth (depart 10:00 AM, arrive 12:30 PM).
Noah can claim:
- Return airfare to Broome and taxi to his hotel and from hotel to airport.
- Accommodation in Broome for all nights (weekend was incidental).
- Costs of undertaking his work in Broome (hire of tools).
- Meals and incidental costs related to his work.
Noah cannot claim:
- The cost of sightseeing.
- The dinner with friends.
Record Keeping for Business Travel Expenses
Maintaining thorough records is essential to substantiate your business travel expenses. Keep records for five years, including:
- Tax invoices
- Boarding passes
- Tickets
- Travel diaries
- Details of how you calculated the private portion of expenses
For sole traders with simple tax affairs, the myDeductions tool in the ATO app can be used to record business-related expenses.
Conclusion
Understanding and properly documenting your overseas travel expenses is key to maximizing tax deductions. By adhering to the guidelines outlined in this article and keeping accurate records, you can confidently claim eligible expenses and ensure compliance with tax regulations. Remember to consult with a tax professional for personalized advice based on your specific circumstances.
