expensestravel

How to Deduct Travel Expenses

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Certain travel costs related to work are tax deductible if they meet certain requirements. In some cases you will not have to substantiate the claims, but in others you will be required to provide documentary evidence that you did incur the expenses. Here are the details.

If you are required to travel in the course of producing assessable income you may deduct most expenses if your employer does not provide a travel allowance.

Travel Allowances

Employers are allowed to provide traveling employees with expense allowances that fall within the “reasonable amounts” that the Australian Taxation Office (ATO) publishes each year.

Payment of the allowance does not by itself allow a deduction. The ATO guidelines state that:

  • For travel allowance expenses, the employee must sleep away from home.
  • Where the amount claimed is no more than the applicable reasonable amount, written documentary evidence is not required.
  • When a claim exceeds the reasonable amount, the entire claim must be substantiated, not just the excess.

In some cases, even when the substantiation exception is relied upon, employees may still be required to show:

  • How they worked out their claim;
  • Why they are entitled to the deduction;
  • Evidence that a bona fide travel allowance was paid; and
  • Proof that commercial accommodation was used.

You may deduct the costs of operating or renting a motor vehicle, purchasing airplane, bus or train tickets, and paying taxi fares. As well, you may deduct the costs of commercial accommodation and meals. You may not generally deduct the costs of travel between home and work.

Assessable income includes, among other amounts:

  • Deemed income from financial investments;
  • Gross income from earnings, including fringe benefits;
  • Employment income salary sacrificed into superannuation;
  • Net income from businesses, including farms, and rental property; and
  • Income from sources outside Australia.

If you claim more than $300 in deductions, you must satisfy one or both of these conditions:

  1. Produce written documentation from the providers of goods and services that includes dates and cost, such as receipts for tickets, hotel rooms and petrol. If you travel for business purposes you need this documentation only if the travel involved at least one night away from home.

Expenses incurred as part of travel in the course of earning non-salary or wage income not involving an overnight absence are subject to the general taxation substantiation requirements.

  1. Keep a travel diary if you are away from home for six or more consecutive nights. The diary must show the nature of each business activity during the trip as well as the date, time and location of the activities. The requirements for the production of such records are similar to those applicable to car expenses. Consult your adviser for details.

There are four specific methods individuals and partnerships can use to calculate their deductions for car expenses:

  1. Cents per kilometre: You can use this method to claim as many as 5,000 business kilometres even if you have travelled more than 5,000 business kilometres. For example, if you travelled 5,085 business kilometres, you can only claim the cost of travelling 5,000 kilometres. You do not need written evidence but you may need to be able to show how you worked out your business kilometres.
  2. Twelve percent of original value: You may use this method when you travel more than 5,000 kilometres. The deduction equals the cost of the vehicle, up to the depreciation cost limit — which can change annually — multiplied by 12 per cent. The cost base used in this calculation is the after-GST cost of the car. For example a car that cost $33,000 including GST would have a cost base for this method of $30,000.
  3. One-third of actual expenses: This method is also used when the distance travelled exceeds 5,000 kilometres. The running costs associated with the car are totaled and the claim is calculated by dividing this total by three. Running costs include fuel, repairs, registration, insurance, motor association subscriptions, road and bridge tolls, lease payments, interest on loans and hire purchase contracts and depreciation.
  4. Log book or 12-week: Using this method you determine the odometer reading in your car on the first day of the 12-week period. Document every business journey in the 12 weeks showing the odometer reading at the start of the journey and the odometer reading at the end of the journey. Take a final odometer reading on the last day of the 12 weeks. This lets you determine a percentage that reflects the actual usage of your car for business.

Full substantiation is required only where the logbook or one-third of actual expenses methods is used.

International Travel

Travel abroad that is connected with producing assessable income can also be deducted by both business and individual taxpayers.

If you are a business taxpayer, you may deduct:

  • The cost of traveling abroad to hire an employee; and
  • The expenses involved in an international trip to seek out new customers because the costs have a close relationship to the expected new business income.

On the other hand, the costs of travel abroad to hire a business partner or to expand a business are generally not deductible.

Professionals and academics may deduct the costs of trips overseas to attend conferences or other activities related to their professional interests. Examples of such deductions that have been allowed include:

  • A history teacher’s trip to historical sites and museums;
  • An outdoor education teacher’s camping and wildlife trip.

The cost of travel insurance, visas and passport fees are not deductible.

Consult your adviser for full details on taking tax deductions for your business trips.