How To Claim Overseas Travel as a Tax Deduction

Most business owners and professionals are keen to travel overseas,  the good news is overseas travel may be deductible and this can significantly reduce the after-tax cost of your trip. With appropriate record keeping, the whole of the trip can be treated as deductible even though on a time basis, actual business activities may be a relatively low total percentage .

Firstly, we are talking about legitimate business travel . We're not talking about lying on a beach in Bali. Holidays are great, and we recommend you take them frequently.  But, it's not what we are talking about here. We are referring to travelling for the purpose of expanding your existing body of professional or business knowledge and experience.

We are often asked when and how overseas travel cost's can be deducted against a professional or business owners assessable income. The answer is simple, overseas travel costs are deductible to the extent they are incurred for the purpose of producing assessable income. More specifically, travel costs are deductible when incurred to increase or maintain an existing body of knowledge currently used to produce income.

It's purpose that determines deductibility and that is why you must document your trip  before, during and after travel. The worst case is usually a part deduction for your travel costs, which is better than no deduction.

So, If the main purpose of your trip was for business or professional development, then 100% of the airfare is tax deductible. If however, you spend additional time at your location that is not related to your business then you would need to apportion  the accommodation costs. For example; If you took a trip for 10 days and you spend 2 days doing tourist activities, you could only claim 8 days of accommodation.  You can still however claim100% of the airfare providing the main purpose of your trip was for business.

It is important to take care with the records you keep for your trip,: this includes a properly completed log book, correspondence to and from colleagues before and after the trip, communications with the travel agent and others involved in organising the trip. Third party invoices and an itemised travel diary or itinerary are substantiation requirements under the Australian taxation law.

Remember, you are also allowed to have fun and you can spend as much as you think is appropriate. You can fly business class and you can stay at multi-star hotels,  if that's what you want. The Tax Office is charged with determining the tax consequences of what you have actually spent, not what they think you should have spent.

So what happens if you have two purposes for you trip ? One purpose may be to learn more about your business or profession and the other purpose may be to catch up with friends or relatives. Here the tax law requires apportionment: the costs will only be deductible to the extent they relate to your business or professional practice. The apportionment will depend on the facts. A half day trip to see an old friend may have no impact on deductibility. But staying with the old friend for three weeks, and having, say, one business  meeting each week for each of those three weeks means virtually no cost are deductible: the inference is that the costs are substantially private and the professional part is incidental and minor.

Accompanying spouses could also be a problem as they may suggest a primary non -business purpose. The bottom line is you can probably still claim all your room costs, even if your spouse's airfare is not deductible. It's perfect if your spouse is also involved in your business or professional practice because here, the second airfare costs will probably be deductible too. But it does depend on the facts.

Each case is different, and if in doubt the best rule is to document everything  so your tax agent can consider the matter and present the best possible case when preparing your tax return .

If you would like more information about how this applies to you and how to maximise your legitimate travel claims , we invite you to contact us..