Do you sometimes take work trips for your business – perhaps to conferences, trade shows or to visit interstate clients? When a trip is clearly for business purposes only, the rules for deducting your expenses are fairly straightforward.
You can claim airfares, taxis and car hire (and fuel). You can also deduct accommodation and meal costs for overnight travel if the business requires you to be away from your home overnight.
But what happens when you’ve planned a holiday to coincide with your work trip, or while you’re travelling for business you also catch up with family or friends?
It’s crucial to keep records showing which expenses are business-related and which are private.
Many of our clients are family run businesses so it’s very common that they take the opportunity when travelling for work to fit in some leisure time. It is certainly something that works well and with good record keeping is something easy to account for from a tax perspective.
Can I claim my full return airfares?
What is the tax deductibility of airfares when you combine business and private travel? Let’s assume you travel to London for a two-week trade show and stay a few extra days for sightseeing. The ATO says that if the primary purpose of the trip is for business, you can claim the whole cost of the return airfares as a business deduction, as well as related costs like travel to and from the airport. In this London example, the additional sightseeing is just incidental.
If you’re undertaking a significantly longer holiday so that the primary purpose of the trip is not just the business activity, you may need to apportion your airfares. And if the primary purpose is clearly private with some incidental work activities, you generally couldn’t deduct the airfares.
How is accommodation treated?
Your deductions for accommodation are limited to those nights that you’re required to be away for the business purpose. This will depend on the facts of your trip. In the London example above, you couldn’t deduct your accommodation, meals and transport costs for the few extra nights you stayed for sightseeing. This is the case, even though you could deduct your full airfares.
On the other hand, if you have to be away for an extended period and some days don’t involve work activities, you may still be able to claim your full accommodation costs. The ATO gives the example of being interstate for two full weeks to complete a project on-site for a client. Your accommodation costs on the middle weekend (when you’re not working at the client’s site) would still be deductible. Of course, private weekend activities like sightseeing, entertainment and having dinner with friends would not be deductible.
Watch out for these traps
The following expenses are not allowed as deductions: travel before you start carrying on your business; visas, passports and travel insurance; and the costs of family members on your trip.
Record-keeping requirements
Sole traders and partners must keep a travel diary if they travel for six or more consecutive nights to record each business activity undertaken, the location, the date and its duration.
If your business is run through a company or trust structure, the ATO says it’s not compulsory to keep a diary, but it’s strongly recommended. And if you’re a company, be careful about your business paying for any private part of your travel as this could have consequences under the Division 7A “deemed dividend” rules about benefits for shareholders and their associates.
Travelling for business?
Don’t attract unwanted ATO attention to your business. Talk to us to ensure you’re getting the maximum deduction for your business trips while staying within the ATO guidelines.