For many business owners and employees, travel is a regular part of work. Keeping track of work-related travel expenses is essential, especially since many of these costs can be tax-deductible. Properly recording and claiming these expenses can help reduce your taxable income, ultimately lowering the amount of tax you owe.
In this guide, we’ll break down everything you need to know about tracking, recording, and claiming work-related travel expenses, including:
- What qualifies as a work-related travel expense
- The business travel expenses you can claim
- Expenses that aren’t eligible for deductions
- The records required to support your claims
- Best practices for tracking travel expenses
What Are Work-Related Travel Expenses?
Work-related travel expenses cover costs incurred for business-related travel, accommodation, and meals. However, not every expense qualifies, and distinguishing between personal and business-related costs can sometimes be tricky.
Small businesses frequently face challenges with the Australian Taxation Office (ATO) when claiming travel expenses, as the rules around eligibility can be complex. One of the most common issues is determining where to draw the line between business and personal expenses. To clarify this, the ATO has established clear guidelines on which expenses qualify for tax deductions.
Business Travel Expenses You Can Claim
For a travel expense to be deductible, it must meet the following criteria:
- The travel requires you (or an employee) to be away from home and stay overnight
- The expense is directly related to business activities and can be substantiated with records
Some common deductible travel expenses include:
- Rental car costs, along with fuel, tolls, parking, and other associated fees
- Public transportation fares (buses, trains, etc.)
- Ride-sharing services or taxis (e.g., Uber)
- Airfare, including tickets and baggage fees
- Hotel or other business accommodation expenses
- Meals during overnight business trips
What You Can’t Claim
Not all travel expenses qualify for tax deductions. Any expenses that are not essential to conducting business cannot be claimed. For example, while you can deduct the costs of traveling to meet a client, you cannot deduct expenses for a personal vacation.
Here are some common non-deductible travel expenses:
- Leisure activities undertaken during a business trip
- Holiday costs, even if they occur alongside a business trip
- Travel insurance, visas, and related documentation
- Gifts and entertainment expenses
If a trip combines business and leisure, only the business-related portion of the expenses can be claimed. For instance, if you travel from Perth to Sydney for a work conference, those expenses are deductible. However, if you extend your stay for personal sightseeing, any additional costs incurred for those extra days will not be eligible.
To claim a portion of expenses from a mixed-purpose trip, you’ll need to provide evidence that clearly separates business costs from personal ones.
Records Required to Claim Business Travel Expenses
Businesses often cover employees’ travel expenses through travel allowances. However, the ATO sets specific limits on how much can be spent per day on such allowances. To successfully claim travel expenses, businesses must maintain proper documentation to prove that the expenses were business-related.
Records should be kept for a minimum of five years and may include:
- Receipts for meals and other expenses
- Tax invoices
- Ticket stubs and boarding passes
- Travel diaries or logs
Other forms of proof that an expense was work-related include:
- Signed contracts
- Meeting records and supporting documentation
- Business proposals
- Email confirmations
How to Track Work-Related Travel Expenses
Businesses have different ways of managing travel expenses, including:
- Paying expenses directly using a company card or business bank account
- Setting up a reimbursement system for employee travel expenses
- Providing employees with a travel allowance
If a business covers these expenses, employees cannot claim them on their personal tax returns. Instead, the business itself can claim them as deductible expenses. However, providing a travel allowance may trigger Fringe Benefits Tax (FBT), which applies to certain employee benefits. For instance, some businesses offer a living-away-from-home allowance instead of a travel allowance, which could be subject to FBT if the employee is away for an extended period.
Given the strict rules around tax-deductible travel expenses, businesses should keep precise records. Here are some best practices for tracking travel-related costs effectively.
1. Educate Employees on What They Can Claim
To minimize errors and missing records, businesses should train employees on what qualifies as a business-related travel expense. Providing a checklist of eligible expenses can help travelers track their costs accurately.
If your company offers travel allowances, inform employees of the daily limits and reasonable amounts for meals, accommodations, and incidentals, as per ATO guidelines. Employees should also keep all receipts and travel-related documents while on the trip.
2. Maintain Accurate Records
The ATO requires businesses to retain records for five years to support travel claims. Several expense tracking apps simplify this process, allowing users to store receipts and other supporting documents digitally.
Sole traders can use the myDeductions tool within the ATO app, while small-to-medium businesses may find accounting software like Xero and MYOB useful for managing expense records.
3. Keep a Travel Diary
If you’re a sole trader or a partner and travel for work for more than six consecutive nights, the ATO requires you to maintain a travel diary. This diary should document:
- The dates of travel
- Daily activities undertaken for business purposes
- The times and details of each activity
Your travel diary should align with your expense records, creating a clear timeline of business-related activities. Even for shorter trips, keeping a travel diary can be beneficial, as it provides extra verification of expenses.
4. Work with a Bookkeeper to Track Expenses
The ATO has strict rules regarding travel expense deductions, and incorrect tracking can be costly. As businesses grow and manage an increasing number of employees, handling travel expenses can become complex.
Engaging a professional bookkeeping service like Tax Visory can simplify the process. A bookkeeper can ensure all travel expenses are properly recorded, categorized, and reported, reducing the risk of tax compliance issues. When tax time comes, having well-organized financial records can make lodging business taxes much easier.
Final Thoughts
Tracking and claiming work-related travel expenses correctly is crucial for tax compliance and financial management. By educating employees, maintaining thorough records, and leveraging bookkeeping tools or professional services, businesses can ensure they maximize deductions while staying compliant with ATO regulations.
For expert assistance in managing work-related travel expenses and back-office finance needs, consider speaking with a Tax Visory bookkeeping expert. Schedule a consultation today to explore tailored solutions for your business.
