Did you know that if you're on an overseas holiday and you attend a work-related conference, that some of your expenses for the day and a portion (possibly 100%) of your flights will be tax deductible? In light of overseas travel ramping back up, this article details what is deductible and how to make sure that you’re keeping the appropriate records.
How can I claim a tax deduction for overseas travel?
To claim a tax deduction the primary purpose of the travel should be directly connected to you developing your professional and business capability and experience (e.g., attending seminars, work tours, or conferences). Since it’s common to combine business and pleasure, follow this rule of thumb: overseas costs are deductible to the extent they are incurred for the purpose of producing income. This purpose determines the deductibility of the expenses. When it is unreasonable to link the travel and the expense to a commercial reason, the ATO deems this as a private holiday and therefore non-deductible.
What records do I need to keep?
Special substantiation rules apply to both overseas and domestic travel. These types of expenses may not be deductible unless you do the following:
- Keep written evidence of the travel expenses and the reason why you are incurring them (regardless of the length of absence from your home). In the instance of a business travel expense this only needs to be kept if the travel was for at least one night away from home; and
- Travel records such as diaries must be kept in the instance where the travel was for six or more consecutive days away from home. Diaries should refer to the nature of the activity, the day and time the activity began, how long it took, and the location of where it took place.
What are some examples of tax deductions?
Typical expenses associated with overseas travel include airfares, accommodation, and daily costs like meals and local travel. So what is actually deductible?
- Airfares – when the main purpose of the travel is for business/professional development, in most cases 100% of the airfare will be deductible, otherwise, a % of the total cost will be.
- Accommodation – this needs to be apportioned between the time you spent doing business and the time you spent for private leisure.
- Travel, meals, and other ancillary costs – car hire, public transport, Uber, and taxis, used on the days you attended business-related activities, including the meals you eat (although there are some interesting rules about food/drink), are claimable.
Can I claim a tax deduction for the costs of an accompanying person?
Travel expenses linked to your partner or spouse are generally not deductible, however special rules may apply in certain circumstances.
If you have been accompanied by your partner or spouse, the ATO accepts the following methods as ways to identify non-deductible costs:
- 50/50 apportionment; or
- Marginal cost (i.e. the difference in single v double room rates); or
- A mixture of these two approaches.
For example, a full deduction for hotel room accommodation would usually be allowable where your partner stays with you, on the basis that the same cost would have been incurred for the accommodation irrespective of whether your partner joined you or not.
Airfares are an interesting one as they are most likely not deductible unless they too are incurred in the derivation of income.
To summarise the article, there are many expenses that may be deductible when you are on an overseas holiday, however, there does need to be an income-producing/professional development component of the trip. If you’d like to get some guidance on this, contact Link Advisors and we can provide our thoughts.