Can you take a holiday on the IRD?

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Can you take a holiday on the IRD?

Nick Roberts • July 26, 2015

The key to success here is the purpose and motive for your trip. If the primary purpose of your trip is for business, and any holiday aspect incidental, then you would be able to claim 100% of the cost of the trip (providing you paid for the accommodation, food and any activity costs yourself on the non-business days). If, on the other hand, there are two purposes for the trip, business and a holiday, then you would need to apportion the cost of the airfares/hire car etc.

A couple of examples will help you understand the rules:

Example 1 - Two Purposes
Gertrude owns a transport business. In December last year she went to Europe to visit her parents on their 50th wedding anniversary and to negotiate contracts for her business. She was overseas for 42 days, and spent 11 days on business.

Gertrude would have gone to visit her parents regardless of whether she went over for business. However, Gertrude needed to go overseas at some stage during the year for business. Before she left, Gertrude contacted her business contacts overseas and arranged to meet them.

Gertrude travelled overseas for two different purposes. In her income tax return, Gertrude claimed a deduction of 11/42 of the cost of the airfare, and the cost of accommodation and meals she spent for days while on business.

The IRD would accept the deduction because in the circumstances it is an acceptable method of apportioning the expenditure. It is clear that Gertrude travelled overseas for two reasons.

Example 2 - Business Purpose Only
Fred owns a tin can store. He was running short of stock so he went to Australia to buy some rubbish cans. While he was overseas, Fred took the opportunity to spend a couple of days with his Aussie mate Bruce.

Fred spent a total of three days in Australia, two days on holiday and one day on business. In Fred's tax return he claimed as a deduction the total cost of the airfare, and the cost of the accommodation and meals for the day he spent on business.

In Fred's situation the IRD would allow the entire deduction. The holiday aspect of the trip is incidental to the main purpose of travelling overseas for business. Fred only visited Bruce because he was over there for business and took the opportunity to see him.

There is a third potential purpose , where the primary purpose of the trip is a holiday and the work aspect is incidental. Here, there would be no deduction for the airfares/hire car but you could claim for the accommodation and meal costs on the business days. Whilst I doubt many would wish admit to having a private purpose it may well be that the number of days on business versus holiday days is a little too obvious!

Conferences/Seminars . Prior to the recession, why did so many franchises hold their annual conferences in Australia? There is no reason why a conference cannot coincide with a holiday!

Deductible Weekends/Public Holidays . If your travelling spans a weekend, you can treat Saturday and Sunday as business days for tax purposes without ever working on them!

Travelling Days . Days travelling will be business days if you travel by a reasonably direct route.

Families . Your other half and family are more of a problem (unless your spouse is fully involved in the business) so perhaps you now have the excuse you've been looking for to take a relaxing break by yourself to take stock of your life!

So, get planning for your next trip - perhaps you could go further than you first thought!

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o get some advice (we'll be happy to help) and take action today!

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p.p1 {margin: 0.0px 0.0px 0.0px 0.0px; font: 15.0px Helvetica; color: #3d596d; -webkit-text-stroke: #3d596d} p.p2 {margin: 0.0px 0.0px 0.0px 0.0px; font: 15.0px Helvetica; color: #00aadc; -webkit-text-stroke: #00aadc} span.s1 {font-kerning: none} span.s2 {text-decoration: underline ; font-kerning: none} Preparing an annual cash flow forecast can tell you a lot about your business. It can warn you with plenty of time to spare that you're not going to have enough cash to survive the next year without getting additional working capital - which is vitally important to know. Or it could be the wake-up call you need to make some changes in your business. You might need to make a tweak or two, like increasing prices or shedding ineffective staff, or you could discover something more serious, such as you're in a twilight business and it's time to move on. Read more on how to prepare and read your forecast here.

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