31 – Overseas and extended domestic travel

A CPD day digression

Dover CPD days focus on strategies, not products. They use a rough template, but are not bound to a script or a time table. We listen to what our advisers want to learn and we go with them. Last year we were asked about travelling overseas to learn more about international developments.

It was a great question and we spent some time exploring the answer.

If a financial planner travels overseas for the purpose of maintaining or expanding an existing body of knowledge used to produce assessable income the costs will be tax deductible.

For example, if you contacted say five financial planning firms in New York and arranged to see them in turn over a two week period, with a view to comparing your practice to their practices, and identifying trends and steps you can take to improve your practice, your travel costs would be deductible against your practice income.

This is so even though you were forced into downtime, ie time when your colleagues were not available and you had to wait to see your next appointment.

Learning from the overseas experience can translate quickly to increased Australian profits and increased Australian goodwill. You can read about one financial planning firm’s experiences doing this here: Professional Planner article 17 December 2015 on learning from a New York experience. The result was a significant shift in their business model, with decisions to separate strategic advice from investment advice, and a move to gain greater scale with discretionary portfolios. They visited North American financial planning practices several times before settling their new business model. All good stuff, and their New York journeys were 100% tax deductible (I expect).

How do you prove purpose?

Deductibility depends on purpose. How do you prove purpose? In summary, paper proves purpose. You must document the business purpose of your travel. Lock stock and barrel. Your early e-mails to your travel agent to detailed file notes of your meetings to up-dating your business plan to implement what you have learned.

What if there is a social element?

It depends on the facts. A minor social element, for example catching up with an old friend on a Saturday afternoon is not relevant. But if you spent a week on work and then a second week at Disney Land then quite reasonably and realistically some part of the cost, perhaps 50%, would be apportioned to your private purpose and would not be tax deductible.

The key is to document your trip and let your tax-agent work out how much is tax deductible.

What is the tax benefit?

If the overseas travel cost $10,000, and was 100% deductible, then a client with a marginal tax rate including Medicare Levy of 39% gets a tax benefit of $3,900 cash, and the after tax cost of the travel falls to $6,100. That becomes a pretty good payback on your investment. One would expect it is not that hard to pick up new ideas for extra fees or lower costs that claw the cost back pretty quickly. It makes good commercial sense. And presumably it was fun. There is no rule that says business cannot be fun.

Travel expenses fact sheet

Chartered Accountants Marsh Tincknell have published a useful fact sheet on deductible overseas travel. You can download it here: Travel expenses fact sheet. You should check any proposed deduction against this fact sheet.

We recommend you recommend deductible overseas travel to your clients wherever appropriate and a great way to reinforce and support your recommendation to your client.

The Dover Group