Small Business

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The golden rules of tax deduction

Don't know whether a payment is tax deductible or not? The golden rule is that it must be linked with the earning of income. There are some cases where there is a link but the payment is not deductible because it is classed as capital or private in nature.

A payment that is private in nature is one where there is a private use component of an expense, such as travel. Where there is a private use component of a payment, a claim can only be made for the business use portion.

Q. My business partner, who we employ as an event consultant, and her daughter are travelling to the UK to do a training course for a new booking system we have just purchased. They will spend seven days in London on the course, excluding the weekend when they plan to travel to Paris. They will then attend a music festival to see what equipment is used by an overseas event.

Our company supplies infrastructure to music festivals in Melbourne and we thought it would be a good opportunity to find out what sort of hire equipment is used overseas. My business partner will fly out after the festival but her daughter will stay for a holiday and will be paying her own way back to Australia. What we can claim?

A. To be able to claim overseas travel, the primary purpose of the trip must be business-related. The primary purpose of the trip is to receive training in the new computer booking system that your business will be using. The secondary purpose is to update your partner's knowledge of the latest technology and equipment available for use in your industry.

As a result your business should be able to claim a tax deduction for the cost of the airfares, accommodation, meals, and incidental expenses related to the business portion of the trip. Your partner and her daughter will be required to provide proof of the business nature of the trip by completing a travel diary each.


The diary will need to be detailed to the point of providing the times spent each day on business matters and what the activity was. This will not be difficult for the days spent in training but the time spent at the music festival could pose a problem.

If they are at the festival for several days, and it would take a reasonable person a few hours to check out the equipment used, the ATO could mount an argument that the main purpose for attending the festival was for a private purpose. If the festival is on a weekend, when they would not be expected to be working; this should mean the tax deductibility of the trip would not be jeopardised.

The basis for claiming overseas travel is complicated. You should seek advice from the your accountant before they go on the trip to confirm what they should be doing and can claim. If your accountant can't provide this advice you should start looking for one who can.

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