Deep Dive: Tax Deduction For Travel Expenses

The most common question accountants get asked is “what can I claim as a tax deduction?” and one of the most common things people ask us to do is to “just claim the standard deduction.” In this blog post we are going to take a deep dive into when you can claim for travel expenses and how to make sure you are making a valid claim.

Work related travel expenses incurred during the course of your employment or business can be claimed as a deduction against your employment or business income. However, first, you must be able to demonstrate a sufficient connection between your income earning activities and the travel. If the travel includes both a business and private portion, any private component must be excluded from the claim.

Travel expenses that you can claim as deductions, to the extent they directly relate to earning income, are:

• Flights

• Accommodation for overnight travels (short term commercial accommodation)

• Meals for overnight travels

• Incidentals for overnight travels

• Car hire costs and any associated expenses

• Public transport

• Taxi fares

• Parking and tolls (for work or business-related trips only)

• Travel expenses between 2 workplaces

Travel expenses that are not deductible:

• Commuting expenses between home and work

• Private purchases during the travel, such as gifts, books or movie tickets that have no connection to employment or business

• Removal and relocation costs associated with the transfer for employment

• Costs associated with passport renewal

• Costs associated with application of visas

• Travel insurance

• Family accompanying on work related travel

• Any travel expenses that were fully reimbursed by the employer

• Any travel expenses that have been paid by the employer

Domestic and Overseas Travel Expenses

Travel expenses associated with domestic or overseas travel must have a direct connection to the employment or business. For food, accommodation, and incidentals to be deductible, you must “sleep away from home” otherwise the expense is considered to be private in nature and not deductible. The amount you can claim depends on whether you received a travel allowance in your pay and the allowance has been included as income in your tax return.

For taxpayers that did not receive travel allowance in their PAYG Summary, travel expenses can only be claimed based on actual expenses incurred and you will need to provide substantiation for each amount that you would like to claim.

Taxpayers that have been paid travel allowance in their PAYG Summaries, have a choice to claim actual expenses based on substantiated documents or claim up to ATO allowed reasonable amounts as set out in Tax Determination TD 2021/6.

Evidence required to support your claim

You need to keep written evidence (for example an invoice or receipt) that includes all of the following information in order for the travel expense to be deductible:

• Name of the business

• Date expense has been incurred

• Date document has been created/generated

• Name of business

• Amount of the expense

• Nature/description of the goods or services

In addition to substantiation rules for domestic or overseas travel, if you are away from home for more than 6 nights in a row, you must also keep a travel diary to record your activities. Travel diary should include the following details for each activity:

• Location of the activity

• Nature of the activity

• Date, time and duration of the activity

The ATO uses Rebecca as an example of how travel expenses can be claimed when there is a mix between business and private travel, in addition to what a travel diary should look like:

Rebecca owns a business as a sole trader landscape gardener. She is invited to exhibit at the Chelsea flower show in England. This involves six days of work representing her business at the show. After the show is finished, Rebecca spends some time sightseeing.

Rebecca’s son James joins her on her trip. James is not involved in the business and spends the days exploring London while Rebecca is at the Chelsea flower show.

As Rebecca is travelling for more than six nights, she keeps the below travel diary.

Travel diary for May:

• Saturday 9 May – 10.00am flight Q13 to London (via Dubai)

• Sunday 10 May – Arrive London 1.00pm local time. Bus to hotel in Chelsea 3.00pm

• Monday 11 May – Rest day

• Tuesday 12 May – Chelsea flower show set-up day from 9.00am

• Wednesday 13 May – Chelsea flower show day 1

• Thursday 14 May – Chelsea flower show day 2

• Friday 15 May – Chelsea flower show day 3

• Saturday 16 May – Chelsea flower show day 4

• Sunday 17 May – Chelsea flower show day 5, ends 5.00pm

• Monday 18 May – Sightseeing in London

• Tuesday 19 May – Sightseeing day trip to Oxford

• Wednesday 20 May – Bus to airport. Flight home Q23 6.00pm from London, arrive 10.00pm local time.

This shows that Rebecca travelled for 12 days. She spent the majority of the time on business related activities and took the opportunity to do some sightseeing while in London for two extra days. Rebecca can only claim deductions for the business-related portion of her travel.

Rebecca can claim:

• the return airfare to London (which does not have to be separated out as the primary purpose of her travel is for business, the sightseeing was incidental)

• her bus fares to and from the airport

• the costs associated with working at the Chelsea flower show including the exhibitors fee and transport to and from the location from her hotel

• Rebecca’s accommodation in Chelsea up to and including 17 May

• meals and incidental costs on the days she attended the Chelsea flower show.

Rebecca cannot claim:

• accommodation, meals or transport expenses on the days noted for sightseeing

• additional private costs from the whole of her time away (such as souvenirs)

• costs of visas, passports or travel insurance

• any of James’ expenses (such as his airfares, the cost of his meals or the cost of an extra hotel room for James).

As with any tax deduction, record keeping is key. A tax deduction is not available to you unless you have the documentation to substantiate the expense.

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Disclaimer: This is general information only and is not advice of any sort. No warranty or representation is provided by Accounting Heart Pty Ltd as to the accuracy, currency or completeness of the information contained in this blog. Readers of this blog should not act or refrain from acting in reliance upon any information contained herein and must always obtain appropriate taxation and / or other advice as may be appropriate having regard to their particular circumstances.