Travel Expenses & Tax deductions explained
You may be able to claim an income tax deduction for travel expenses where they have a connection with deriving assessable income or carrying on a business.
*Always seek specialist advice that is tailored to your situation and risks.
This information can also be downloaded as a PDF:
What’s deductible?
A deduction is allowed for work-related travel including:
travel between business places
travel overseas
travel to acquire plant
Costs are usually deductible in the income year you incurred them. However, where some costs are prepaid, you may be able to claim deductions over multiple income years. This applies to advance bookings for travel and accommodation over $14,000, or bookings that are for more than six months after your balance date.
The best way to ensure that you have sufficient proof of the connection between the travel expense and your business is to record a memo of the nature of the trip and its relationship to your business with the relevant invoices/receipts.
We recommend you read our Entertainment Expenses Guide, on that guide it outlines how expenditure while out of town is treated, we summarise here:
Entertainment Expenses | 50% deductible | 100% deductible |
Taking a client out to dinner whilst you are out of town on business - but still in New Zealand | ✅ | |
Taking a client out to dinner | ✅ | |
Giving a client a gift of a bottle of wine or other beverage | ✅ | |
Taking a client out to dinner whilst you are on business overseas | ✅ | |
Entertainment which is merely an incidental part of a trade display mainly held to advertise or promote the business | ✅ | |
Dinner for staff and Owners e.g. Sales Rep whilst out of town selling with no client present | ✅ | |
Employee's salary package includes a taxable allowance for entertaining clients | ✅ | |
Giving a client tickets to a sports game, concert, show or other recreational event (excluding corporate box entertaining) | ✅ |
What’s not deductible?
A deduction is not allowed for travel between your home and place of business unless your residence is used as a work base.
You cannot claim for costs that are of a private or domestic nature, of a capital nature, or incurred in deriving exempt income or income from employment. For more information on deductions and reimbursements to employees for travel expenses, contact us and we can send you our Travel Allowances fact sheet.
Travel and Capital Expenses
Generally, travel expenses relating to the purchase of business assets is regarded as capital and looked upon as part of the cost of the machinery.
However, a deduction is allowed for travel expenses undertaken to study new machines or processes.
Overseas Travel Expenses
Overseas travel expenses (other than meal costs) are deductible to the extent that they are incurred in relation to your business. Any element of holiday expenditure is not deductible.
Make sure you have adequate documentation supporting the business nature of your travel expenses.
Complete a detailed travel itinerary and diary keeping track of:
letters of introduction
business contacts/cards
firms visited
business conducted
diversions from the business itinerary for personal purposes
all items of expenditure, as well as the total cost
Meal costs incurred overseas when on business may be limited to the extra costs incurred over and above normal costs for the meal (that is, restaurant meals vs normal dinner meals).
What if I’m mixing business with a holiday?
Where the trip contains a private or capital element, you may need to apportion the costs between what is deductible and what is not. It generally works this way:
100% deduction – where the holiday aspect is incidental to the work element
apportionment – where there are two purposes for the trip, both truly separate
no deduction – where the work aspect is incidental to the holiday
A simple way to apportion costs is based on the number of days spent on business as a fraction of the total number of days spent on travel. Inland Revenue will consider other apportionment methods if they consider them reasonable in the circumstances, such as situations where specific expenses can be attributed to either business or personal travel,
For travel by group tour, it used to be the case that the tour organiser supplied Inland Revenue with the necessary details and Inland Revenue could give overall approval in principle and tended to accept the individual’s travel expenses without further question. This is no longer the case.
Taxpayer’s Spouse/family members accompanying
Where a taxpayer travels for business, accompanied by a spouse or family members, in most cases the companion’s travel expenses will not be deductible. If the companion is accompanying the taxpayer simply for companionship or to attend social functions, then this expenditure will not have a sufficient nexus with the taxpayer’s business or income-earning activity.
Expenses for a taxpayer’s companion will be deductible if there is a sufficient connection between expenses incurred and the taxpayer’s income-earning or ability to carry on the business. Inland Revenue will consider whether the companion has either knowledge of the business being undertaken or possesses specialist skills or expertise to be able to provide support in a material way. If this exists, Inland Revenue will view the expenditure as having a sufficient nexus with the taxpayer’s business or income-earning activity.
Any expenditure which is of a holiday or private nature should not be claimed. Be aware that for expenses incurred within New Zealand, the rules for entertainment expenses may apply.
Investor’s travel expenses
In some cases, an investor may be able to claim a deduction for travel expenses incurred in connection with the management or administration of investments. The investor would need to show that there is a sufficient connection between the travel expenses and the investment business to support the claim.
Our recommendation
It is best to consider the taxation implications of business travel before the trip rather than on your return to New Zealand!
We suggest you make an appointment to see us so that we can go through your travel expenses claim.
Disclaimer
This article is for informational purposes only and should not replace specific tax advice. For personalised advice please contact us.
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