When a trip is clearly for business purposes only, the rules for deducting expenses are fairly straightforward. Taxpayer's can claim airfares, taxis and car hire (and fuel). They can also deduct accommodation costs for overnight travel if the business requires them to be away from their permanent home overnight. Meals are also deductible when it is a requirement to be away overnight.
The following FAQs summarise the general tax treatment approach for more mixed-purpose situations; for example, when someone has planned a holiday to coincide with their work trip, or they also see the sights or catch up with family or friends while travelling for business.
What is the tax deductibility of airfares when you combine business and private travel? Let's assume you travel to London for a two-week trade show and stay a few extra days for sightseeing. The ATO says that if the primary purpose of the trip is for business, you can claim the whole cost of the return airfares as a business deduction, as well as related costs like travel to and from the airport. In this London example, the additional sightseeing is just incidental.
If you're undertaking a significantly longer holiday – so that the primary purpose of the trip is not just the business activity – you may need to apportion your airfares. And if the primary purpose is clearly private with some merely incidental work activities (eg you attend a half-day work event while you happen to be on an extended personal holiday), you generally couldn't deduct the airfares.
Your deductions for accommodation are limited to those nights that you're required to be away for the business purpose. This will depend on the facts of your trip. In the London example, you couldn't deduct your accommodation costs for the few extra nights you stayed for sightseeing. (Similarly, any meals and transport around London would not be deductible for the days you spent sightseeing.) This is the case even though you could deduct your full airfares.
On the other hand, if you have to be away for an extended period and some days don't involve work activities, you may still be able to claim your full accommodation costs. The ATO gives the example of being interstate for two full weeks to complete a project on-site for a client. Your accommodation costs on the middle weekend (when you're not working at the client's site) would still be deductible. Of course, private weekend activities like sightseeing, entertainment and having dinner with friends would not be deductible.
The following expenses (among others) are not allowed as deductions:
- travel before you start carrying on your business;
- visas, passports and travel insurance; and
- the costs of bringing family members (eg a spouse) along with you.
Sole traders and partners must keep a travel diary if they travel for six or more consecutive nights. This must detail each business activity undertaken, the location, the date and time it began and how long it lasted.
If your business is run through a company or trust structure, the ATO says it's not compulsory to keep a diary, but it's strongly recommended. And if you're a company, be careful about your business paying for any private part of your travel as this could have consequences under the Division 7A "deemed dividend" rules about benefits for shareholders and their associates.