Taxation And Law For Travelling Business Expenses

Section 25-100 of Income Tax Assessment Act 1997

Describe about the Taxation and Law for Travelling Business Expenses.

The travelling expenses are incurred by newly admitted lawyer resident in Bendigo. The total travelling expenses incurred is of $2000. He has been travelling to Melbourne and back five times per week for training and playing football.

Interpretation of section 25-100 of Income Tax Assessment Act 1997 is important to understand whether this expenses incurred by the lawyer would be allowed as deduction or not. There are two aspects to it; one is whether the expenses were incurred in relation with increasing assessable income or two places connected to his profession or job.

The travel expenses would be allowed to be deduction only if the travelling expenses incurred to the extent of travelling between two workplaces.

The travel expenses linked between two places and the assessee was engaged in the first place for the purpose of gaining or producing assessable income.

The purpose of travelling to second place was mainly to engage to gain or produce assessable income and

The assessee was engaged in business and profession in the second place to gain assessable income.

Therefore the link between two places should be related to business and profession and the purpose of the travelling should be to gain or produce assessable income. Here the newly admitted lawyer who has the potential to become a good footballer travelling between work place to training place. The travelling cost is linked to his profession and the expenses were incurred to gain and produce assessable income. Therefore the travelling expenses of $2000 should be allowed as deduction (Austlii, 2016).

In this case a large accounting firm paid $14,000 being the total amount of expenses in respect of return air travel ($4,000) to the USA by its administration manager to purchase a new office computer ($10,000). The travelling cost and deduction of such attracts section 25-100 of Income Tax Assessment Act 1997. Hereby the interpretation of section 25-100 of Income Tax Assessment Act 1997 is important to assess the air travel expenses incurred by the accounting firm. It is to be assessed whether the expenses incurred is in relation to the business or office related reasons or not.  

There are two aspects for assessment of the expenses; whether it would be deductable or not. Here the assessee is travelling between two places which are integrated to his profession and the travelling was part of his responsibility as an employee of the accounting firm for increasing assessable income or two places connected to his profession or job.

Deductible travelling expenses for professionals

As the section clearly states that in following cases, the travelling expenses would be allowed as deduction from assessable income of assessee.

The travel expenses will be allowed to be deduction only if expenses incurred to the extent of travelling between two workplaces.

The travel expenses linked between two places, the assessee is engaged in his profession or work at that first place for the purpose of gaining or producing assessable income.

The purpose of travelling to second place was mainly to gain or produce assessable income from the business and

The assessee was also engaged in the second place for business and profession to gain assessable income (Austlii, 2016).

If these aspects are considered, the administration manager went to purchase computer for his office and that would ultimately be used for gain or produce assessable income. Therefore the air travel expenses of $4000 would be allowed as deduction.

On the other hand if the administration manager attended a conference on advanced office management techniques, then it would also be deducted as expenses as the conference was attended by him with the target of learning the best techniques for office management which would ultimately be used to increase his assessable income.

According to 32-50 Income Tax Assessment Act 1997 some other expenses are incurred in relation to the work or profession is allowable as deduction. Here, Adrian Robertson is a lecturer at a Melbourne University, from which he derives his income from the university only. Adrian has a separate room in his house which he uses for works of office like writing conference papers and marking assignments and exam papers, he finds difficult to complete in his office at the university. The expenditure related to this is of $700. Any expenses incurred in relation to the occupation or of profession including foods and meals would be allowed as deduction. Here the expenses are mainly linked to the occupation. The important part of the taxation is nothing but understanding of the cost. If the cost is related to the business expenses then it will be allowed as deduction here the case is same. The expenses incurred are in relation to the occupation and the profession, therefore the cost will be allowed as deduction.

The expenses incurred are work related even food expenses incurred related to occupation and profession would be allowed as deduction. The expenses incurred by the lecturer are mainly work related and therefore the expenses incurred in relation to it would be allowed as deduction. Therefore the expenses would be allowed as deduction (Austlii, 2016).

Interest payments and loans

The payment interest is a allowable deduction but the loan has to be used for the business and for the profession. There is specific legal opinion regarding deduction of interest from assessable income. The assess has to accept the loan from a financial institution and the loan was accepted on the basis of the business profile of the person. The acceptance of loan therefore would be allowable expenses. Interest payment is allowable as deduction as long as it is paid to gaining or producing assessable income or the loan is accepted for the business and profession. In those cases the interest on loan is allowable expense (Iknow, 2016).

Here, Daniel is an accountant who incurred extensive losses ($75,000) from the FOREX market caused by the recent BREXIT event. He has used borrowed monies partly to meet this loss. The legislators have not been able to sum up all the areas of business in the law book but the understanding and the interpretation would help in analysis the relation of the cost and its actual application by the assess. This simply means that the interest is paid in relation to the business for gaining or producing assessable income. Therefore the interest paid would be accepted in income tax as deduction (Legislation, 2016).

The residential status for income tax in Australia is determined by his stay at Australia in the income year. If the person stays at Australia for six months, this would simply imply that the person is resident. The stay of six months is important to determine his residential status (Ato, 2016). A person who has been out of the country for number of years is not a resident as far as income tax act of Australia is concerned. The tax residency of the person will be calculated on the basis of his stay at that country. Here in Australia if a person stays therefore more than six months in an accounting year, the person would be tax resident of Australia. The income received from Australian sources along with income generated from other sources outside Australia will be clubbed during tax calculation.  If an Australian stays out of Australia and comes back to the country and stays there for six months and more he would be liable to pay tax according to Australian tax law. Here stay of six months does not mean continuous stay but stay of six months could be a discontinued stay also.

Lleyton is a professional tennis player born in Australia in 1972 who spent all his life there until 1990 when he travelled to France and the USA to play in tennis tournaments. During the income year to 30 June 2016 he spent 6 months in the USA and 2 months in France and spent the remaining time in that year living with his parents in Australia. Therefore, his total stay in Australia is of four months, which is below the criteria of six months. Therefore, Lleyton would be considered as nonresident for income year to 30 June 2016 (Ato, 2016).

If the tax residency of the person is proved and the person working in a different country has not stayed in Australia for six months, his income from the foreign source will not be taxed according to the income tax rules. Here the income of the tennis player is derived from the foreign source and he was not a tax resident in Australia during his stay in Australia. The resident Australian if earns any income from foreign source would be taxed in Australia. During his life he stayed in Australia till 1990 and then went to USA and France. He spends his time in USA and France and played tennis tournaments. This simply means that the arising from the tennis tournaments would not be considered as income under Australian Income Tax. If the person during his stay in Australia earns assessable money but he not a tax resident of Australia, his income would not be taxed.

References:

Ato, 2016. Are you a resident? [Online] Available at: https://www.ato.gov.au/Calculators-and-tools/Are-you-a-resident/ [Accessed 16 September 2016].

Ato, 2016. Work out your tax residency. [Online] Available at: https://www.ato.gov.au/Individuals/International-tax-for-individuals/Work-out-your-tax-residency/ [Accessed 16 September 2016].

Austlii, 2016. INCOME TAX ASSESSMENT ACT 1997 – SECT 25.100. [Online] Available at: https://www.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s25.100.html [Accessed 16 September 2016].

Austlii, 2016. INCOME TAX ASSESSMENT ACT 1997 – SECT 32.50. [Online] Available at: https://www.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s32.50.html [Accessed 16 September 2016].

Iknow, 2016. Interest expense. [Online] Available at: https://www.iknow.cch.com.au/topic/tlp821/overview/interest-expense [Accessed 16 September 2016].

Legislation, 2016. Income Tax Assessment Act 1997. [Online] Available at: https://www.legislation.gov.au/Details/C2013C00082 [Accessed 16 September 2016].