Private ruling: Deductibility of overseas travel expenses
Published: May 2015
Ruling period: Year ended 30 June 2013 | Year ended 30 June 2014
Date scheme commenced: 1 July 2012

Ruling: Questions and Answers | 1. Are you entitled to claim deductions for overseas travel expenses in an income year to the extent that they were incurred in that income year? | Yes. | 2. Can you apportion your overseas income and tax withheld over two income years on a 50/50 basis? | No.

Relevant facts and circumstances: You had an agreement between yourself and a foreign organisation. The agreement required you to provide consulting services in a foreign country. Your total remuneration was $X. This breaks down into the following amounts: • the initial payment, of $X • personal income tax was withheld of $X • the final payment of $X made • net amount you received was $X The income was not assessed in a foreign country. The tax withheld was the final amount of tax payable there. The tax paid on the whole income was paid in one income year but the net income received was received in two income years. You incurred expenses for travel, accommodation, meals and incidentals. These are daily expenses incurred while travelling. Your other travel related expenses included: insurance, visa, internet, phone costs, translations and postage. You have included these in general business expenses. You have receipts for most of your expenses. You did not receive a travel allowance.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1997 Section 8-1 | Income Tax Assessment Act 1997 Division 770

Reasons for decision: Detailed Reasoning - Deductions for expenses: Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a deduction is allowable for expenses incurred in gaining or producing assessable income, provided those expenses are not capital, private or domestic in nature. In your case, the expenses you incurred for overseas travel (which are not capital, private or domestic in nature) are deductible under section 8-1 of the ITAA 1997 in the income year in which you incurred the expenses. | Detailed Reasoning - Assessable income: Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year. Where income is derived from a single contract primarily involving the use of a taxpayer's skills or knowledge, where these do not amount to the carrying on of a business, is assessable on a receipts basis. The payments you received in a foreign country for your consultancy work are this type of payment. The initial payment you received in a foreign country of $X was received in the income year ended 30 June 2013 and is assessable in that income year under section 6-5 of the ITAA 1997 as ordinary income. The final payment you received in a foreign country of $X was received in the income year ended 30 June 2014 and is assessable in that income year under section 6-5 of the ITAA 1997 as ordinary income. | Detailed Reasoning - Claiming a foreign income tax offset (FITO): You can claim a FITO you have paid on employment income that are included in your assessable income. You do this in your Australian tax return. In some circumstances, the offset is subject to a limit. To be entitled to a FITO: • you must have actually paid an amount of foreign income tax • the income or gain on which you paid foreign income tax must be included in your assessable income for Australian income tax purposes. Differences between the Australian and foreign tax systems may mean you pay foreign income tax in a different income year from that in which the income or gain is included in your assessable income for Australian income tax purposes. You could have paid the foreign tax in an earlier or later income year. However, the offset can only be claimed after the foreign tax is paid. To claim a FITO of up to $1,000, you only need to record the actual amount of foreign income tax paid on your assessable income (up to $1,000). If you are claiming a FITO of more than $1,000, you have to work out your FITO limit. This may result in your tax offset being reduced to the limit. If you have paid foreign income tax after the year in which the related income or gains have been included in your assessable income, you may amend your assessment for that year to claim the offset. As a non-refundable tax offset, the FITO reduces your income tax payable (including Medicare levy and Medicare levy surcharge). Under the tax offset ordering rules, it is applied after all other non-refundable tax and non-transferable offsets. Once your tax payable has been reduced to nil, any unused foreign income tax offset is not refunded to you, nor can it be carried forward to later income years. For more information about calculating and claiming a FITO, log on to the ATO website at www.ato.gov.au then enter QC 39816 in the search field.