August 10 - Tax Accounting

How Can I Make a Holiday a Tax Deduction?

Not sure about you… but it seems every person and their dog are either soaking up some QLD sun or sipping on an aperol in Italy at the moment. It’s got that travel bug flying around and we know a lot of you are wondering whether those flights can go on the business card, or if holidays are a strictly personal expense. Here’s the answer to those questions! 

What is a tax deduction?

A tax deduction is a reduction in income that is allowed or sanctioned under the tax laws. Deductions reduce the base amount of income on which an individual is taxed. Certain expenses, sometimes called itemized deductions, have been known as deductions for many years. However, tax law changes have broadened the term “deduction” to include eliminated income, such as credits and exemptions; these create revenue offsets for government bills.

What defines a business expense?

A business expense is incurred for the purpose of generating income or profit. It’s an expense you deduct from your taxable income, and therefore lowers your tax liability. You can claim expenses associated with running your business like hiring staff, buying equipment, marketing materials, travel costs, and more. There are some restrictions on what counts as a legitimate expense though… and listing those would take far more than a blog post. A simple example however, is if you were a delivery driver and you use your car 90% of the time for work. Then 90% of your fuel expenses would be a tax deduction.

So what’s a holiday and what’s a business trip?

The answer here is pretty simple: if your travel (or parts of it) are undertaken to produce business revenue – whether that’s landing a new client or maintaining an existing relationship for example – then it’s deductible. 

If you’ve booked flights to lie on a beach somewhere – even if you’ll be working remotely – that’s a holiday. The travel (sadly) isn’t necessary to perform those standard work tasks, so the cost is entirely on you. 

What kind of travel can be claimed as holiday tax deduction?

Similar to our first example of a general tax deduction, the same rule applies here. If you’re going on a 10 day trip, and only two of those days are spent at a conference, then only 20% of your accommodation expenses are deductible for instance.

It’s important (and fun) to note that the entire flight is deductible though, because you need it to fly to that conference no matter how long you end up spending over there.

Other examples include…

  • A research trip: you’re an importer of homewares and you’re flying to Bali to tour some different production facilities, gathering information and seeing how they operate with your own eyes. This is a legitimate business activity that will directly affect your future income
  • Meetings: this one is less common in the post-covid (or mid-covid?) days because there’s a thing called Zoom, but sometimes face-to-face meetings are still needed. If Jase and Greg fly to Perth to meet Shelley and chat Future Advisory business financial planning, that’s clearly a business expense. If they choose to stay another three nights and hop on the Rottnest ferry for a Quokka selfie, that’s on them
  • Conferences: probably the most common kind of business trip. It’s about networking, upskilling… all the good things that ultimately add to your bottom line. Deductible!

How do you claim tax deductions on work related travel?

Two words: keep records. Going to a meeting? You need correspondence of the organisation and confirmation of the other attendees. Conferences are easy with proof of ticket purchase. Accommodation receipts, taxis, food – all of it. If you don’t keep the records to prove what you were doing over there, then the ATO might have a few choice words for you. An itemised travel diary or itinerary are also required. 

As with anything finicky and tax related, ask us first! Before you hit book, let us know what your plans are so we can make sure you’re going about it in the most tax effective way with our accounting and tax service

Need to chat? Find us here.