Michelle Maynard, Partner at Carbon Accountants and Business Consultants, discuses what options are available for tax deductions if you combine a work trip with a personal holiday. Taking your spouse or family with you on your business trip will complicate the situation, she writes.
If your employer requires you to travel away from home overnight for work purposes, perhaps on an interstate trip, you may be able to claim a deduction for any meals, accommodation or incidental expenses which you incur, if you are not reimbursed by your employer.
Your employer may pay you an allowance to cover the costs you incur while travelling. You do not have to declare the allowance as income in your tax return if all of the following apply:
- the travel allowance is not shown on your payment summary
- the travel allowance does not exceed the Commissioner of Taxation’s reasonable allowance amount
- you spent the whole allowance on deductible accommodation costs (and meal and incidental expenses, if applicable).
If you do not declare your allowance as income, you cannot deduct your accommodation costs nor any meal and incidental expenses you incur – even if they are more than your allowance.
If your travel is 100% for work purposes it is pretty clear that your expenditure would be deductible (subject to the allowance rules above). But what happens when you combine your travel with some personal leave? If you choose to add a private holiday onto the end, or beginning, of your work-related travel = will this affect what you can claim in your return?
Taxation Ruling TR 98/9 discusses the apportionment of overseas travel expenses where there is a dual purpose for the travel. Although this ruling deals with deductions of self-education expenses, the principles are the same for all cases requiring apportionment and could equally apply to work- or business-related travel expenses.
Taxation Ruling TR 98/9, paragraph 64 states that ‘If the purpose of a study tour or attendance at a work-related conference or seminar is the gaining or producing of income, the existence of an incidental private purpose does not affect the characterisation of the related expenses as wholly incurred in gaining assessable income’.
There are at least two kinds of expenditure that would require apportionment.
1. Distinct and severable parts of the expenditure are devoted to gaining income and other parts are devoted to the private portion of the trip. E.g. If a study tour or work-related conference or seminar was mainly devoted to a private purpose, such as having a holiday, and the gaining or producing of income portion was merely incidental to the private purpose, only those expenses directly attributable to the income-earning purpose would be allowable.
2. The expenditure is a single outlay that serves both an income-earning purpose and some other purpose indifferently. The High Court has recognised that there can be no precise arithmetical division in such cases, it said there must be some fair and reasonable division based on the facts of each case. For example, if a study tour or work-related conference or seminar is undertaken equally for income-earning purposes and private purposes, it would be appropriate to apportion the expenses equally between the purposes.
The ATO has provided the following examples to better explain their position.
1. Glenn, a qualified architect, attends an eight-day work-related conference in Hawaii on trends in modern architecture. One day of the conference involves a sight-seeing tour of the island and a game of golf is held on the final afternoon of the conference. As the main purpose of attending the conference is related to the gaining or producing of income, the total cost of the conference (air fares, accommodation and meals) is allowable.
- The existence of private pursuits, such as the island tour and the game of golf, is purely incidental to the main purpose and does not affect the characterisation of the conference expenses as wholly incurred in gaining assessable income.
2. Jenny, a doctor, was holidaying in Cairns when she became aware of a work-related seminar on the current treatment of cancer patients.
- The cost of the half-day seminar was $200. Jenny is able to claim a deduction for the cost of the seminar because it is directly attributable to an income-earning purpose. However, no part of her air fare to Cairns or her holiday accommodation is an allowable deduction.
3. Francesco, a paediatrician, has 2 equal purposes when he decides to attend a five-day international conference on paediatrics in Singapore to be followed by a seven-day holiday in Thailand. The conference package is $2,500 ($1,000 return air fare, $500 for the cost of the conference and $1,000 for accommodation and meals at the conference venue). Francesco paid another $2,000 for accommodation, meals and car hire for the 7 day holiday in Thailand.
- Francesco is allowed a deduction of $1,500 for the conference cost and the accommodation and meals expenses at the conference. Only half of the return air fare ($500) is allowed as the expense was incurred for two equal purposes, one income-earning and the other private. The other expenditure of $2,000 relating to the holiday in Thailand is private in nature and not allowable as a deduction.
In applying these examples, it is accepted that where the employees only travel to attend the conference the travel costs would be deductible for the employee as the main purpose of attending the conference is the gaining or producing of income. However, it should be noted that if the employee was to extend their stay at the holiday location, it may become necessary to apportion the costs to take account of the private purpose.
The calculation about what is deductible becomes further complicated if you take your spouse or family with you on your work- or business-related travel. Depending on the circumstances, this can further impact the deduction you are able to claim.
It is advisable to keep detailed records of your expenditure as well as your activities whilst travelling, so you are able to substantiate your tax deduction claim.
Michelle partnered with Carbon in 2017, bringing a wealth of experience in accounting and bookkeeping. Her extended suite of services covers everything from tax accounting, planning and estimates, to cloud integration, payroll and SMSF. Michelle started her career as a cadet in the Australian Taxation Office, then as a graduate at PwC. Before joining Carbon, she was a manager at PKF, bringing a wealth of knowledge and experience to the team at Carbon. Michelle specialises in providing tax and accounting advice to SMEs and HNWIs and their family groups, working to achieve the most effective strategies for them, both financially, tax effectively, and to help achieve their desired lifestyle.