Travel expenses are a significant outlay for many professionals and business owners in Australia. Understanding how to properly claim these expenses on your tax return may lead you to substantial tax savings.
Understanding Eligible Travel Expenses
Firstly, it’s important to distinguish between the types of travel expenses that are deductible. The ATO allows you to claim costs associated with travel required for your business or job. These expenses include:
- Airfares, train, tram, bus, taxi, or ride-sourcing fares.
- Car hire fees and associated costs such as fuel, tolls, and parking when using a hire car for business purposes.
- Accommodation costs when you are required to stay away from your permanent residence overnight for business.
- Meal expenses for overnight business travel.
Keep in mind that to claim these expenses, the travel must be directly related to your income-earning activities, and you cannot claim for any private portion of the trip.
Record Keeping and Travel Diaries
For sole traders and partners in a partnership, if you travel for six or more consecutive nights, you must keep a travel diary. This diary should detail each business activity, including the date, time, duration, and location. For companies and trusts, while not compulsory, maintaining a travel diary is highly recommended to substantiate claims.
No matter what though, you MUST keep records such as tax invoices, boarding passes, and receipts to substantiate claims. These records need to be kept for five years from when you lodge your tax return.
Claiming Car Expenses
If you’re using your car for work-related travel, you can claim expenses using either the ‘cents per kilometre‘ method or the ‘logbook‘ method. The ‘cents per kilometre’ method allows you to claim up to 5,000 work-related kilometres per car without written evidence, but you need to be able to show how you calculated your claim. The ‘logbook’ method requires more detailed record-keeping but can result in a larger claim if you travel extensively for work.
Work-Related Travel vs. Private Travel
It’s really important to separate work-related travel from private travel. For example, if you extend a business trip for leisure purposes, you can only claim the business-related portion of the trip. The ATO are vigilant in checking these claims, so ensure your documentation clearly differentiates between the two!!
Travel Allowances and Reimbursements
If you receive a travel allowance from your employer, you can claim a deduction for the expenses covered by this allowance. However, you must have incurred the expenses and have the necessary records to prove it. If your employer reimburses you for travel expenses, you cannot claim a deduction for those costs.
Fringe Benefits Tax and Employee Travel Expenses
If you’re an employer paying for, or reimbursing employee travel expenses, be aware of the potential Fringe Benefits Tax (FBT) implications. FBT is a tax that employers pay on certain benefits they provide to their employees, including their employees’ family or other associates. The definition of a fringe benefit includes various forms of non-cash benefits, one of which can be travel-related expenses.
Generally, if you provide benefits such as flights, accommodation, or car hire for an employee’s private travel, it will be subject to FBT. This is because you are considered to be providing a benefit beyond the employee’s salary or wages. If the travel is purely for business purposes, such as sending an employee to a conference or to work at a different site, the costs are typically considered a business expense and not subject to FBT. However, if there is a significant private component to the trip, FBT may apply to that portion. Minor benefits that are less than $300 and infrequent may be exempt from FBT. If the employee would have been able to claim a deduction for the travel expenses had they paid for it themselves, the value of the benefit can be reduced by the ‘otherwise deductible’ amount. Special concessions are available for travel to or from remote areas under certain conditions. If you provide fringe benefits to your employees, you may need to report these on their payment summary or through Single Touch Payroll (STP). You also may need to lodge an FBT return and pay any FBT owed by the due date. Sometimes, employees may make a contribution towards the cost of their travel benefits. This can reduce the taxable value of the fringe benefit and, consequently, the FBT liability.
Our final key tips!
- Always separate business and private expenses.
- Keep thorough records, including a travel diary if necessary.
- Understand the rules around travel allowances and reimbursements.
- Consult the ATO’s occupation and industry-specific guides for additional information.
- By keeping accurate records and understanding the ATO’s guidelines, you can confidently claim travel expenses and potentially reduce your tax liability.
The key to a smooth tax return process is organisation and adherence to the ATO’s rules and regulations.
Should you have any queries around the deductibility of your work-related travel, or how to claim these expenses in your tax return, don’t hesitate to get in touch with us.
