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NOTE:
The tax regime applying to all fringe benefits is
highly complex, and professional advice should be
taken before planning any scheme designed to minimise
taxation. These notes are intended simply to give
a general overview and should not be relied upon as
a basis for action in any particular case.
Business
Travel
For tax
purposes, travel expenses are the ordinary and necessary
expenses of travelling away from home for business,
professional or employment reasons. Expenses that
are "lavish or extravagant", says the IRS,
are not tax deductible.
The tax
treatment of travel expenses depends on how much of
a trip is business related and on how much of the
trip occurred within the US. With travel entirely
within the US, tax is not payable on travel if the
trip is entirely-business related. If an employee
makes a trip primarily for business and, while at
his or her business destination, extends the stay
for a vacation or partakes in other non-business activities,
only the business-related travel expenses can be deducted.
If a
trip is made primarily for personal reasons, such
as a vacation, the entire cost of the trip is a non-deductible
personal expense, although a person may deduct any
expenses he or she has while at the destination that
are directly related to his or her business. It is
worth noting that a trip to a resort or on a cruise
ship may be a vacation even if the promoter advertises
that it is primarily for business. The scheduling
of incidental business activities during a trip, such
as viewing videotapes or attending lectures dealing
with general subjects, will not change what is really
a vacation into a business trip.
If any
part of an employee's business travel is outside the
US, some of the deductions for the cost of getting
to and from his or her destination may be limited.
If travel outside the US is purely for business reasons,
all travel expenses can be deducted for tax purposes.
Even if a person does not spend his or her entire
time on business activities, the trip is considered
entirely for business if he or she meets at least
one of the following four exceptions:
- Exception
1 - No substantial control. The trip is
considered entirely for business if the employee
does not have substantial control over arranging
the trip. According to the IRS, those considered
not to have substantial control over a trip are
those who are reimbursed or paid a travel expense
allowance, those not related to the employer and
those who are not a managing executive.
- Exception
2 - Outside United States no more than a week. A
trip is considered entirely for business if a person
is outside the US for a week or less, combining
business and non-business activities.
- Exception
3 - Less than 25% of time on personal activities.
A trip is considered entirely for business if a
person is outside the US for more than a week, but
spends less than 25% of the total time on non-business
activities.
- Exception
4 - Vacation not a major consideration. A
trip is considered entirely for business if an employee
can establish that a personal vacation was not a
major consideration, even if he or she has substantial
control over arranging the trip.
With
travel primarily for business where some time is spent
on non-business activities, all travel expenses incurred
cannot generally be deducted. Only the business portion
of an employee's cost of getting to and from his or
her destination is not subject to tax.
Whilst
the opportunity of business travel by ocean liner
rarely arises, it is worth noting that if a person
travels by ocean liner, cruise ship, or other form
of luxury water transportation for business purposes,
there is a daily limit on the amount that can be deducted
as a business expense. The limit is twice the highest
federal per diem rate allowable at the time of your
travel. (Generally, the federal per diem is the amount
paid to federal government employees for daily living
expenses when they travel away from home, but in the
US, for business purposes.) The per diem rule does
not apply to expenses if a person has to attend a
convention, seminar, or meeting on board a cruise
ship.
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