Claiming Overseas Travel Expenses: What You Need To Know

If you're travelling for business, you may be able to claim your expenses as a tax deduction. This includes travel, accommodation, meals, and other costs. However, the rules around claiming these deductions can be complex and vary depending on factors such as the purpose of the trip, the length of the trip, and the type of expenses incurred. It's important to keep detailed records of your expenses and to understand the specific requirements and restrictions that may apply in your jurisdiction.

Travel expenses for business owners

As a business owner, you can claim deductions for expenses if you or your employee are travelling for business purposes. However, it is important to note that the travel must be legitimate and proven via documented evidence.

Business travel expenses that can be claimed include:

• Air, rail, bus, and taxi fares
• Car hire fees and associated costs (e.g. fuel, tolls, and parking)
• Meals, if you are away overnight
• Local transportation costs, such as taxi fares, between the airport/station and hotel, or from one customer to another
• Cleaning and laundry expenses
• Computer rental fees
• Public stenographer fees
• Telephone or fax expenses
• Tips on eligible expenses
• Transportation costs for samples and display materials

You can only claim the business portion of business travel expenses. Private expenses such as holidays, visits to family or friends, sightseeing, entertainment, visas, passports, travel insurance, and travel expenses that arise from relocation or living away from home are not claimable.

Overseas travel

Business-related foreign travel expenses are tax-deductible, but they are scrutinized closely by tax authorities due to the potential for abuse. If you spend any time engaging in personal activities during your trip, you may need to allocate your travel expenses and only deduct the amounts attributed to business. However, if you spend 100% of your time abroad on business, foreign travel expenses are fully deductible.

Record-keeping

Good documentation is essential when claiming business travel expenses. A travel diary or similar document is compulsory for sole traders and partners in a partnership to record overnight business travel expenses and highly recommended for everyone else. Details such as the nature of the activity, the date and time the activity began, its duration, and the name of the place where the activity occurred should be recorded.

Dual-purpose trips

If your trip has two purposes, such as business and leisure, your travel expenses can only be deducted to the extent that they relate to your business or professional development. The costs will need to be apportioned based on the actual business portion of the trip.

Accompanying spouses

The inclusion of a spouse on a business trip may suggest that the primary purpose of the trip was not business-related. If your spouse is involved in the business, their airfare costs should be deductible. However, if they are not employed by the business, claiming these costs may not be possible.

Business travel expenses can provide significant deductions for business owners, but it is important to follow the rules and requirements carefully. By understanding what expenses are eligible, maintaining proper records, and apportioning costs for dual-purpose trips, business owners can maximize their tax benefits while remaining compliant with tax regulations.

What constitutes legitimate business travel

Legitimate business travel is undertaken for business purposes. It does not include daily commutes or trips for leisure purposes. Typically, business travel involves being away from home for at least a day. Each individual journey is considered a "business trip".

Business travel can be one of the biggest expenses for a company, so it's important to understand how it can impact your business taxes. The Internal Revenue Service (IRS) defines business travel as any travel that the taxpayer does away from their home or principal place of business for business purposes. This means being outside your entire city or the general area of your main business location.

To be considered legitimate business travel, the trip must meet certain criteria:

• Business Purpose: The trip must have a clear business purpose, such as client meetings, attending or speaking at a conference, research and development, or board meetings. The activity should have the potential to generate revenue.
• Ordinary and Necessary: According to the IRS, expenses must be "ordinary and necessary". An ordinary expense is typical in your business in terms of amount, frequency, and purpose. A necessary expense helps increase profits or expand the business.
• Proper Documentation: Every expense must be properly documented. This includes receipts, hotel reservations, conference tickets, transportation costs, and a log of expenses.
• Overnight Stay: The IRS requires an overnight stay for a trip to qualify as business travel.
• Proportion of Business Activities: For international business travel, deductions are proportional to the time spent on business activities. If you spend 40% of your time on business, then 40% of your expenses are deductible.
• Accommodations: The quality and price of accommodations should be similar to what is typical for your business trips. Staying at a luxury hotel when you usually stay at more modest accommodations may raise red flags.
• Non-business Companions: If travelling with non-business companions, such as a spouse or family members, you can only deduct the cost of lodging you would have paid if travelling alone.
• Meals: You can deduct 50% of the cost of business meals. Personal meals are not deductible, but food expenses related to business can be partially deducted.
• Travel Expenses: Travel expenses are deductible on the days when work-related events occur. This includes transportation to and from the event, such as plane, train, or taxi rides.
• Other Deductible Expenses: Other deductible expenses may include shipping baggage, tips for services, dry cleaning, and business calls.

How to calculate deductions for mixed-purpose trips

When calculating deductions for mixed-purpose trips, it's important to understand the purpose of the trip and the expenses incurred. Here are some guidelines to help you calculate deductions effectively:

• Business vs. Private Expenses: To be tax-deductible, expenses must be incurred "wholly and exclusively" for business purposes. For directors and employees, travel expenses must be incurred in the performance of their job to be deductible.
• Mixed-Purpose Trips: If you combine business and personal activities during a trip, you can still claim deductions. The key is to identify and separate business and private expenses. For example, if you travel to visit customers and stay overnight, the cost of travel to visit customers is deductible, while personal activities like going to the cinema are not.
• Domestic Travel: When adding vacation days to a domestic business trip, you can deduct transportation expenses if the primary purpose of the trip is business. Transportation costs include airfare, baggage fees, taxi fares, etc. If vacation is the main reason for the trip, none of these expenses are deductible.
• Foreign Travel: When travelling outside your home country primarily for business, you usually need to allocate travel expenses between business and personal activities. There are, however, two exceptions:

• The One-Week Rule: If your trip is one week or less (not counting the departure day but counting the return day), you can deduct 100% of transportation costs and out-of-pocket expenses for business days.
• The 25% Rule: For trips longer than a week, you can deduct 100% of transportation expenses if you spend less than 25% of your days on vacation.

• Accompanying Spouses: The costs of an accompanying spouse may suggest a primary non-business purpose. However, if your spouse is involved in your business, their airfare may also be deductible.
• Record-Keeping: It's crucial to maintain proper records of your trip, including a logbook, correspondence, invoices, and a detailed travel diary or itinerary. This documentation will support your claims for deductions.
• Business Conventions: When attending business conventions, seminars, or training, ensure they are closely connected to your job or benefit your trade. Keep records to prove that business was the primary purpose of the trip.
• Saturday Night Stayover: Staying over the weekend to reduce airfare can be considered a valid business purpose. You may deduct additional meal and lodging expenses for those days, subject to certain limitations.
• Proving Business Purpose: If you cannot prove that the main reason for a trip was business, you may still allocate expenses between business and personal days and deduct the portion related to business activities.
• Sole Traders and Partners: If you are a sole trader or partner travelling for six or more consecutive nights, a travel diary is mandatory. Record business activities, dates, times, and locations.

Remember, each case is unique, and it's always best to consult a tax professional or your tax agent for specific advice regarding your mixed-purpose trip deductions.

Deductions for accompanying spouses or partners

When it comes to claiming overseas travel expenses for accompanying spouses or partners, there are a few things to keep in mind. The rules and regulations may vary depending on your location and specific circumstances, but here are some general guidelines:

Bona Fide Business Purpose

It is important to establish that the presence of your spouse or partner on the trip serves a bona fide business purpose. This means that their presence must be directly related to conducting or facilitating business activities. For example, if your spouse is also your business partner or employee, their travel expenses may be deductible. However, if their presence is primarily for personal reasons, such as companionship or sightseeing, their expenses will likely not be deductible.

Documentation and Record-Keeping

Proper documentation is crucial when claiming deductions for accompanying spouses or partners. This includes maintaining records such as a logbook, correspondence with colleagues and travel agents, third-party invoices, and a detailed travel itinerary or diary. These records can help substantiate the business purpose of the trip and demonstrate that expenses were incurred during the travel.

Apportionment of Costs

If your spouse or partner's presence on the trip serves both business and personal purposes, you may need to apportion the costs accordingly. For example, if you engage in business activities for a portion of the trip and then extend your stay for personal activities, you may only be able to claim a portion of the accommodation costs that relate specifically to the business portion of the trip.

Tax Implications

The tax treatment of spousal or partner travel expenses can vary depending on your jurisdiction. In some cases, the value of spousal travel may be included in the employee's taxable income or wages. However, there may be exceptions if the spousal travel qualifies as a working condition fringe benefit or if it is considered to have a bona fide business purpose. It is important to consult with a tax professional or refer to your local tax regulations to understand the specific tax implications.

Specific Circumstances

There may be certain circumstances where a spouse's expenses could be allowed for deduction or exemption. For instance, if the employee has specific health concerns and requires the spouse's presence during travel, or if the spouse possesses a practical qualification directly associated with the employee's mission, such as acting as a translator during business meetings. These situations should be carefully evaluated on a case-by-case basis.

Record-keeping requirements

Record-keeping is essential when it comes to claiming overseas travel expenses. Here are the key requirements to keep in mind:

Receipts and Written Evidence:

• It is important to maintain receipts or other written evidence for your travel expenses. This can include items such as deposit information, cash register tape receipts, credit card receipts and statements, invoices, and cancelled cheques.
• The written evidence should include the name of the supplier, the amount in the local currency, the nature of the goods or services, the date of the expense, and a description of the item.
• If any details are missing, you can add them to the document yourself before submitting your tax return.
• For expenses incurred abroad, the written evidence can be in the local language.

Travel Diary:

• In addition to written evidence, a travel diary is often necessary to record your travel activities, especially if you are away for six or more nights in a row.
• The travel diary should include details such as when you stopped for meals, dates, and the start and end times of each activity.
• The purpose of the travel diary is to differentiate between work-related and private elements of your trip, as you can only claim deductions for the work-related portion.
• It is important to note that even if you are eligible for a record-keeping exception, you may still need to provide evidence of how you spent the money on work duties and how you calculated your deduction.

Record Retention:

It is crucial to retain your travel records for a specific period. For example, in Australia, you must keep your travel expense records for five years from the date you lodge your tax return.

Compliance with Tax Regulations:

• It is essential to familiarize yourself with the tax regulations in your country or region, as they may have specific requirements for record-keeping. For example, the Internal Revenue Service (IRS) in the United States has specific guidelines for what records to keep and how to treat different types of expenses.
• Be mindful of the potential for abuse, especially with foreign travel expenses. The IRS closely scrutinizes these expenses to ensure they are solely for business purposes and not combined with personal vacations.
• If your trip involves a mix of business and personal activities, you may need to allocate your expenses accordingly and provide justifications for the business-purpose of your travel.

Frequently asked questions