Travel Deductions Explained
Hi, my name is Simon Bray and I am member of your HMH Advisory team.
I would like to provide some guidance regarding business travel expenses. Travel, both domestic and international, is an inevitable part of doing business and we want to ensure you are aware of what can reduce your tax bill. We also do not want to create additional unforeseen tax liability by way of fringe benefits tax, FBT as it is known.
Travel expenses for tax purposes are incurred when you are away from home and do not include the day to day commute. Examples are:
- Air travel
- Taxis and ride sharing
- and; Meals
To claim these expenses and reduce your tax, there are three key components to consider with any of these expenses:
1. Were they incurred in order for the business to generate income?
2. Were they entirely or portionally for business?
3. Are you able to prove the expense?
There are complexities behind the points mentioned, but that is for us to understand. For your needs, everything comes down to the primary purpose of the travel. If there is a leisure or a non-business, component and it is “incidental” to the overall purpose of the trip, most expenses will be tax deductible.
To prove this “incidental” component, the ATO states you must keep a travel diary if you are travelling overseas or interstate for six or more nights. This travel diary must be kept for five years and must record the following:
- Nature of the business activity
- The date, time and length of the activity
- The name of the place where the business activity occurred
There are no specific requirements as to the form in which a travel diary must be maintained. Our suggestion is to use our electronic calendars which we use every day to organise ourselves making sure you note all details of your appointments and travels. We recommend to do this for every trip you take regardless of whether it is less than six nights. It will keep you organized and help you prove any business portion of expenses. It will also allow you to describe to your HMH Advisor the exact facts so we can advise you of any tax consequences.
So, as an example-
Let’s say you as a business owner, are travelling to Europe for two weeks. The trip includes a conference being run by a supplier, then visiting a number of supplier’s factories. There is minimal downtime so you decide after visiting factories, to see the sights of the cities. All expenses are paid for by the company on the company credit card and assume you have kept an adequate travel diary.
In this example, all airfares, other transport, accommodation and meals will be tax deductible. Only the specific sightseeing expenses would be questionable. The sightseeing expenses would likely give rise to an additional tax by way of FBT, as these are for non-business purposes.
If we were to change the facts, where you are going to Europe for two weeks and you were to visit only one factory, whilst travelling predominately sightseeing with family. The only deductible expenses would be your personal accommodation for the night of the factory visit and transport costs to and from the factory. All other expenses will be of non-business nature are likely to give rise to an FBT liability, if paid for by the business.
There are no circumstances that are exactly the same. Please call your HMH Advisor to provide you with the guidance you need. The cost of getting this wrong could be significant.
To summarise, if you are travelling for work:
- What is the main purpose of your trip?
- Keep your electronic calendar up to date with details of when, where and why
- Keep all records for five years
If you have any further questions, speak to your HMH Advisor.