It does not matter if you are an employee, an employer, a sole trader or run a small business; there might occur some situations when you need to travel for business purposes. The costs incurred in such conditions are classified as work-related expenses.
Work-related travel expenses are usually tax deductible. However, the Australian Taxation Office gets thousands of incorrect claims every year for work travel expenses. As a result, they have started keeping a close eye on the expenses that are being claimed to make sure they are valid.
Understanding how to qualify for such deductions and which expenses can be used to help you optimise your travel costs as well as save money on your taxes is a necessity today. So here’s a guide to help you know everything when it comes to business travel expenses.
What are work-related travel expenses?
According to the ATO, while travelling for work, any purchase you make in regard to this travel is usually claimable as a travel expense on the tax return. The travel can be driving your car to the client’s office situated kilometres away (from your office) or visiting a temporary location for work. Along with this, interstate and overseas travel expenses are also deductible.
Work-related travel expenses include ticket costs or fares for any modes of transportation, tolls, parking, etc, along with meal expenses and accommodation. There are some restrictions as well on what you can claim. We will look into that in the later part of this blog.
Here’s what you can claim:
- Accommodation expenses
- Incidental expenses (like laundry)
- Taxi, bus, train and air fares
- Road and bridge tolls
- Car hire charges
- Parking fees
- Meal expenses (only for overnight travel for work)
- Bags used solely for a work trip
Claiming work-related driving costs
When it comes to travel tax deductions, transport costs are extremely popular. Except for the travel from work to home and vice versa, the cost of work-related travel in your personal car or on a means of public transport is claimable.
What can you claim?
You can claim a deduction for the cost of:
- Travelling between two separate workplaces for different jobs
- Travelling from your workplace to meetings or events offsite
- Travelling from one job to a second job if and when required
- Travelling to a different location, if you work at more than one location for your employer
- For those working from home for a specific period of the day and working in the office for the rest of the working hours (but only for the same employer), the cost of travelling to the workplace is claimable.
You can’t claim a deduction for the cost of:
- The everyday travel from your residence to the workplace and back
- If you work from home for one employer but not for the other employer, your cost of travelling to a second job can’t be claimed.
- Any additional task or work you do on your way back home, for instance, picking up your package
Car parking – Is it a travel expense?
Suppose you had an out-of-office company event or meeting. In order to park your car, you had to pay for parking as you used your own car to get there. In this case, you can claim the cost of the trip and the parking costs.
However, you cannot and should not claim parking or car expenses if you have been reimbursed by your employer.
You cannot claim the cost of everyday parking as well if you drive to work and have to pay for parking near the workplace.
What documentation of work-related travel expenses should you keep for your tax return?
You should keep everything that is relevant to your tax returns. Work-related vehicle charges can be claimed by receipts or tax invoices, which serve as documents supporting a specific order.
However, remember, those fade over time. A logbook can be very useful when claiming employment-related trips.
Travel diary – Do you have to keep one?
Anybody who has to stay away from home for more than six nights consecutively should keep a travel diary. But what should be recorded in a travel diary?
In the travel diary, you can keep a record of what you were doing, where you were and the start and end times of the activities you were engaged in.
It is always a good idea to keep a record of your travel expenses, even when keeping a diary isn’t really required. Since there’s a possibility of you forgetting details about all the expenses made in the months, it can cost you a huge amount in your refund at tax time.
What can’t be claimed?
Since we have discussed what work-related travel expenses can be claimed, now take a look at the expenses that can’t be:
Unless your employer has assigned you to carry bulky tools to work (due to lack of an appropriate place to store them at the workplace), you should not claim a tax deduction on your journey from home to work and back home.
Also, claiming the travel expenses for which you have been reimbursed by your employer is also prohibited.
In case you decide to bring your family along for a business trip, you cannot claim accommodation costs or any travel expenses for them.
Ask your tax agent to know more about what can be claimed or cannot be. If you are looking for good tax accountants in Melbourne, Clear Tax Accountants can help you reduce your tax responsibilities and provide the right advice for your tax matters.
Usually, the travel allowance you receive from your employer is considered taxable income. Thus, it needs to be listed on your income statement. In simpler terms, if you receive a travel allowance, it is going to be included on your tax return as taxable income.
If you spend the money paid to you as travel allowance, claiming a tax deduction against it when the tax time comes is possible. There is a common misconception that the entire allowance can be claimed as a tax deduction even if you haven’t spent all of it. This is not true at all.
Travel records – What to keep
What travel records are worth keeping? There is practically no record that is not worth keeping. You should have all the receipts and records for all the travel expenses related to work, even if you were reimbursed for it.
Record keeping will help you ask your tax agent if you can claim certain work-related travel expenses (in case you are doubtful).
Remember, you can’t claim something if you do not have anything to prove it!
What if you travel for work and then spend an extra few days on holiday at the end of the trip?
When your travel is split between leisure and work, you need to split all your travel expenses between the two as well. You must keep the following two rules in mind in these circumstances:
- The primary purpose of the trip has to be work-related
- You cannot claim any part of the said trip that wasn’t work-related
To understand it better, consider that you had to go on a three-day work-related trip. But you decided to extend your trip by two more days. Since only the first three days were for work, you can claim work-related travel expenses for those days.
You cannot claim the cost for the next two days because you spent the money on your leisure. The accommodation costs incurred in the first three days, the fares of the taxi for travelling to and from (only work-related) and the meal expenses for that time are claimable but not for the remaining two days.
If you want to claim a deduction for any work-related travel expense, you will have to keep a few restrictions in mind. Keeping detailed records of work-related travel expenses will increase your chances of receiving a tax refund.
Disclaimer: The information on this website is for general purposes only and should not be relied upon for making legal or other decisions. The advice provided in this article is general in nature and is not subject to the personal financial situation and needs of any individual. Clear Tax tries to keep the information accurate and up-to-date; however, you should bear in mind with changing circumstances, the accuracy and reliability of the information will not necessarily remain the same. The information is by no means a substitute for financial advice.