Travel Expenditure Deductibility

Posted: 15th July 2011

Travel, accommodation and meal expenses are deductible to the extent that they are incurred in the course of the taxpayer's business.  A "nexus" must exist between the travel expenses and the earning of income.  The travel costs can be expensed if incurred as part of the business operation (or to gain knowledge of the business operation).

If the expenses were incurred in purchasing an asset, then the costs should be capitalised as part of the cost of acquiring the asset.

Where travel costs are incurred in purchasing capital assets such as new business or fixed assets (machinery, vehicles etc), they must also be treated as capital.  The travel cost is added to the asset's cost and is subject to depreciation.

Overseas travel expenses are deductible to the extent that they are incurred in the course of the taxpayer's business.  Any element of holiday expenditure is not deductible.  As well as the income nexus test, the intention of the trip must be considered.  Was business the principal reason for travel or was the business portion merely incidental to a personal holiday?

When business is the principal purpose, airfares and business related expenses are deductible.  Expenses incurred during the holiday element of the trip are not deductible.  Records should be kept detailing itinerary, firms visited, business conducted, diversions from the business itinerary for private purposes, items of expenditure and the total cost.

Travel expenses incurred to attend events such as trade fairs and field-days are deductible, provided they relate to existing business operations and activities.

A deduction is allowed for travel expenses incurred on trips undertaken to make a general survey of new assets or new business processes.  A deduction is also allowed if the object of the travel is to buy trading stock.

If you have any queries regarding the above, please contact James McQuaid on 09 308 4058 or james.mcquaid@tbag.co.nz

Source: Markhams