Claiming a tax deduction for business travel expenses
As a business owner, the general rule is that you can claim deductions for expenses if you or your employee are travelling for business purposes. A travel diary is:
- compulsory for sole traders and partners in a partnership to record overnight business travel expenses
- highly recommended for everyone else.
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Expenses you can claim
Your business can claim a deduction for travel expenses related to your business, whether the travel is taken within a day, overnight, or for many nights.
Expenses you can claim include:
- train, tram, bus, taxi, or ride-sourcing fares
- car hire fees and the costs you incur (such as fuel, tolls and car parking) when using a hire car for business purposes
- meals, if you are away overnight.
To claim expenses for overnight travel, you must have a permanent home elsewhere and your business must require you to stay away from home overnight.
If you are entitled to goods and services tax (GST) input tax credits, you must claim your deduction in your income tax return at the GST exclusive amount.
Expenses you can't claim
You can only claim the business portion of business travel expenses. You must exclude any private expenses, such as:
- a holiday or visit to family or friends that is combined with the business travel
- the expenses associated with you or your employee taking a family member on the trip
- souvenirs and gifts
- sightseeing and entertainment
- visas, passports or travel insurance
- travel expenses that arise because you are relocating or living away from home
- travel undertaken before you started running your business.
How to claim employee travel expenses
If your employees travel for your business, the business must actually pay for the travel expense to be able to claim it as a deduction. The business can pay for the expense by:
- paying directly for the expense from the business account
- paying a travel allowance to the employee
- reimbursing the employee for their expenses.
Fringe benefits tax (FBT) may apply if your business pays for or reimburses your employees for their travel expenses. Certain exemptions and concessions may apply to reduce your FBT liability. For example, your business may not have an FBT liability if it reimburses an employee for their travel expenses to attend a work conference, which the employee would have been able to claim as an income tax deduction if you hadn't reimbursed them.
You will be liable for FBT if your employee extended their travel for private purposes and you reimburse the employee for these private costs. If your business provides benefits to your employees, you may need to obtain some records from the employee.
If you are the director of a company and the business pays for private portions of your travel expenses, there may also be Division 7A implications.
If you pay your employees a travel allowance or a living-away-from-home allowance, there are different considerations.
Sole traders and partners in a partnership
If you are a sole trader or a partner in a partnership and you travel for six or more consecutive nights, you must keep a travel diary or similar document before your travel ends, or as soon as possible afterwards. In your travel diary, record the detail of each business activity including:
- what the activity was
- the date and approximate time the business activity began
- how long the business activity lasted
- the name of the place where the business activity occurred.
Your travel diary can be in any format as long as it contains sufficient detail to justify what you are claiming.
Example 1: Rebecca
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:
End of example
- 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).
Example 2: Noah
Noah owns a business as a sole trader interior designer and decorator. He lives and works in Perth. A new customer has asked him to design and decorate her home in Broome. This will take two weeks to complete.
Noah flies to Broome on Sunday evening and returns to Perth two weeks later. On the weekend he does some sightseeing and catches up with friends. He keeps the following diary:
- Sunday: Fly to Broome (depart 4.00pm, arrive 6.30pm)
- Monday 2 September: Purchase decorating supplies 9.00am–10.30am. Working at client’s house 10.45am – 4.00pm
- Tuesday 3 – Friday 6 September: Working at client’s house 7.30am to 4.00pm
- Saturday: Day trip to Horizontal Falls. Dinner with Pam and Geoff
- Sunday: Sightseeing around Broome
- Monday 9 – Friday 13 September: Working 7.30am to 4.00pm at client’s house
- Saturday: return flight to Perth (depart 10.00am, arrive 12.30pm).
Noah can claim:
- his return airfare to Broome and taxi to his hotel and from hotel to airport
- accommodation in Broome for all nights (as the weekend in between was incidental and the primary purpose of travel was for business)
- costs of undertaking his work in Broome (such as hire of tools)
- meals and incidental costs of his work.
Noah cannot claim his private expenses, including:
End of example
- the cost of the sightseeing he does on the weekend
- the dinner he has with friends.
Companies and trusts
If your business is a company or a trust, we highly recommend you use a travel diary as it will help you work out the proportion of the travel that was for private purposes.
Records for business travel expenses
Keep records for five years to substantiate your business travel expenses, including:
- tax invoices
- boarding passes
- travel diaries
- details of how you worked out the private portion of expenses.
If you’re a sole trader with simple tax affairs, you can use the myDeductions tool in the ATO app to record your business-related expenses.
You can claim a tax deduction for expenses you incur travelling for your business. There are special record-keeping rules for claiming expenses you incur when travelling overnight.