By Adam Tims, Partner, Martin O’Connor & Partners

Inside Racing – April 2007

TRAVEL EXPENDITURE – IS IT TAX DEDUCTIBLE?

With major yearling sales, racing carnivals and stallion parades happening across the country and abroad, it is timely to consider your entitlement, if any, to tax deductions regarding travel expenses.

The deductibility of traveling expenses (including the domestic and/or overseas airfares and accommodation costs) is deductible to the extent that it is incurred in gaining or producing assessable income or is necessarily incurred in carrying on a business, provided that the expenditure is also not of a private nature. Put simply, if the travel is necessary to earn future assessable income for you or your business, you may be entitled to claim deductions for travel expenses.

For example, you travel to the Gold Coast with your family for two weeks and during this time you also find some time to inspect yearlings, attend the Magic Millions sale and may even come home with a yearling or three. Should you be able to claim the airfares, accommodation and other travel related costs? In this situation the participation at the yearling sales may be merely incidental to the private purpose (family holiday). Therefore, apportionment of the expenses is necessary and only the expenses directly attributable to the income-earning purpose (ie: horse business) will be allowable.

Conversely, where the main purpose of the trip was the gaining or producing of income (ie: you are at the Gold Coast mainly because you are selling yearlings that you have bred), the related expenses will be fully tax deductible in spite of the existence of an incidental private purpose.

Substantiation Requirements
Special substantiation rules apply to expenses in relation to overseas and domestic travel. To be deductible you should ensure;

1. Written evidence is obtained in respect of expenses relating to travel.

2. Travel records (ie. a travel diary) are kept where the taxpayer was away for six or more consecutive nights. These records should be in a prescribed format containing particulars of each business activity undertaken during the relevant travel. Entries should set out a) the nature of the activity b) the day and time c) how long it lasted and d) where the activity took place.

Summary
It’s a good time to consider the deductibility of your travel expenses. There are a relatively large number of court cases surrounding this issue and we strongly suggest that you talk to your accountant about the deductibility and proper apportionment of such expenses.

The substantiation requirements may appear cumbersome but the overall tax benefit usually makes it worthwhile.

As always we strongly recommend that you discuss this matter with your accountant and/or tax advisor as the circumstances and end tax result may differ on a case- by –case basis. This article is of a general nature only and is not intended to be relied upon as, nor to be a substitute for, specific professional advice. No responsibility for loss occasioned to any person acting on or refraining from action as a result of this article can be accepted.