Business travel has its tax benefits

“I am visiting India. Can I claim the expenses as a business expense against my investment in property investment (as business) or against my business?” 

This is one of the common questions asked by property investor and business taxpayers, the answer to which would vary from case to case.

Overseas travel could be either for business, private or both.

It is essential to identify the primary purpose of the trip.

If the primary purpose is business, the air travel fare will be fully tax deductible. The amount spent on accommodation and food should be apportioned based on the number of days spent on business and holiday.

If the work-related aspect was incidental to the holiday, then, airfare will not be deductible but accommodation and meals for the days on business can be claimed as deductible.

If the overseas trip is partly for business and partly for private purpose, then the costs can be apportioned on a time-basis.

Cost related to travel for private purpose would not be eligible for tax deduction.

As a taxpayer, you would be required to show to Inland Revenue Department (IRD) evidence of your business claim for overseas travel.

You should have a proper plan for business travel and make it clear to IRD that your travel was for business, even if it is combined with leisure.

You should also have a record of business meetings arranged, telephone calls, fax and email messages and such other documentation that would satisfy the tax officials.

It would be good to maintain a diary of business clients visited and business conducted, along with the time spent on holiday or leisure.

You should also maintain a proper record of expenditure, along with relevant invoices and receipts for payments made.

There could be occasions when your partner or spouse may accompany you on overseas trips. You must have a valid business reason to claim travel expenses of the accompanying person, including whether the person is under your employment, is an active partner in your business or whether you need someone for health reasons.

The nature of income that the taxpayer derives will also determine the tax deductibility of travel expenses. If the expenditure is incurred specifically for earning salary income, then such travel expenses will not be tax deductible.

Employees are specifically denied deduction for travel expenses incurred in earning their employment income.

Overseas travel expenses may be incurred to explore new business opportunities overseas. Travel expenditure incurred as part of the existing business in New Zealand will be deductible. However, if the travel is undertaken to commence operations in a foreign country as a new venture, the expenditure incurred prior to the commencement of business overseas will be regarded as expenditure of a capital nature and will not be tax deductible.

Vijay Talekar is a director of Tax Experts Limited, Chartered Accountants (www.taxeperts.co.nz). The above article should be considered only as a guideline and not a specific advice. Mr Talekar absolves himself, the management and staff of Tax Experts Ltd and Indian Newslink of any responsibility or liability that may arise from the above article. Readers should seek professional advice before acting upon any information contained above.