Tax time has arrived, and if you haven’t had us lodge your return yet, here is another deduction tip — should your circumstances allow. (If your return has already been lodged, then this could be a handy tip to file away for next income year.)
The ATO recently issued what it calls a “tax determination” which more clearly spells out the circumstances of what may be an allowable claim (under the general heading of “managing tax affairs”). The fact that you can deduct the fee that we charge you is the most widely known of these allowable deductions, but not everyone is aware that you can also make a claim for the costs of travel you incur where the purpose of the journey is to have your tax return prepared.
The Taxation Commissioner’s view, as stated in the tax determination, is that such costs should be deductible. But, as with deducting the fee charged for such professional services, a non-negotiable stipulation is that the task must be carried out by a “recognised tax adviser”.
The costs included in allowable claims (that are involved with managing tax affairs) include accommodation, meals, public transport fares and even travel insurance.
Importantly, to the extent that some of the travel costs relate to another non-related purpose, such expenditure is expected to be apportioned. The Commissioner states that this is required to be done in a “reasonable” way, although whether or not a method of apportionment is reasonable or not will depend on the facts of each case. Only the costs that reasonably relate to managing tax affairs are deductible.
According to the determination, taxpayers should be able to demonstrate the reasonableness of the apportionment methodology used, including keeping any relevant evidence, to support the deduction claimed. Evidence could include calendar entries, car odometer records, taxi fare receipts, journals showing time spent at meetings with the tax agent and time spent on private activities.
The tax determination includes three examples, which work to explain the different circumstances where either the total cost of travel is deductible, or a portion of that expenditure.
Sole purpose of travel
Maisie and John are partners who carry on a business of sheep farming on a station near Broken Hill. Every year they travel to Adelaide for the sole purpose of meeting with their tax agent to finalise preparation of their partnership return. They stay overnight at a hotel, meet with their tax agent the next day, and fly back to Broken Hill that night. The full cost of their trip, including taxi fares, meals, accommodation and travel insurance, is deductible.
Apportionment when travel is equally for managing tax affairs and private purposes
Julian is a sole trader who carries on an art gallery business in Oatlands. He travels to Hobart for two days to attend a friend’s birthday party and to meet his tax agent to prepare his tax return. He stays one night at a hotel.
Because the travel was undertaken equally for the preparation of his tax return and a private purpose, Julian must reasonably apportion these costs. In the circumstances, it is reasonable that half of the total costs of travelling to Hobart, accommodation, meals, and any other incidental costs are deductible.
Apportionment when travel is incidental to main private purpose
Erin is an employee working in Warragul. She has her tax return prepared by a tax agent in Melbourne. When travelling to Melbourne for a week long football training camp, she decides to stay an extra night in a hotel to visit her tax agent the following day. She travels back to Warragul after the meeting.
As Erin’s trip is mainly for private purposes, and visiting the tax agent is incidental to that main purpose, she must reasonably apportion the costs.
In the circumstances, it is reasonable that only the direct costs of her accommodation for the extra night, incidental costs associated with this time, and the taxi fares from the hotel to her tax agent’s premises and back to the hotel are deductible.