Can I claim for a business-class flight to London and other taxing questions

THE 2007-08 tax year has just finished and the annual battle with the tax man has commenced. The secret to successfully claiming tax deductions is to ensure you have all of the supporting documentation required.

THE 2007-08 tax year has just finished and the annual battle with the tax man has commenced. The secret to successfully claiming tax deductions is to ensure you have all of the supporting documentation required.

Q. I purchased a business-class ticket to London for work. I have not asked my company to reimburse me as I had credit to use up. The trip was all work-related. Can I claim a deduction for the cost of the flight?

A. To claim a tax deduction there must be a connection between the expense and the income earned. In addition, it must have been necessary to incur the expense to gain the income. This means when a taxpayer pays for something they want that is related to earning income, rather than something they must spend to earn income, a tax deduction may be disallowed.

One way of proving that an expense was required is a letter from an employer. In your case, producing a letter from your employer stating the trip was a necessary part of your duties would be enough. In the absence of written evidence you must be able to make a case that the trip was required, rather than something that seemed like a good idea at the time.

Another factor that will support a claim for travel is your employer paying you a travel allowance or reimbursing you for costs such as accommodation and meals. If you travelled alone, and not with family, this would also help indicate that the trip was employment-related.

As part of establishing the travel was tax-deductible, the tax act requires certain documentation. For travel of six nights or more a travel diary must be kept. The travel diary must show the dates you travelled, places you visited, times and duration of your activities, and preferably the business purpose of activity undertaken.

The tax office can also demand that you produce evidence supporting the claim. The exception to this is when the claim is equal to a reasonable travel allowance paid by an employer, unless the claim is for accommodation.

Q. As I am over 60, I understand that my superannuation pension is not included in my taxable income. I have calculated that my income for 2007/8 would be in the vicinity of $58,000. Would I be eligible for a health-care card?

A. For a single person to be eligible for a low income health-care card, his or her income for an eight-week period must be less than $3480, or $22,620 for a year. To retain a card your income must be less than $28,275 a year. On this basis you would not be eligible for a card.

Q. With the increase in the low-income tax offset for 2008/09 I believe children can have unearned income of about $2600 a year. At an interest rate of 8% a child could have about $32,500 in an interest-bearing account and not pay tax. Who should be the signatories on the account and could the Tax Office deem the parent to be the recipient of the interest earned and not the child?

A. What the funds in a bank account are used for, and not who the signatories are, will determine who pays tax on the interest. If the funds are used for the benefit of the child the ATO should regard the interest earned as relating to the child.

If instead the child gets no benefit from the account, and the parents use the funds for their own purposes, the ATO could attack the arrangement as tax avoidance and assess the parents on the interest earned.

Questions can be emailed to

max@taxbiz.com.au

Tax for Small Business, a survival guide by Max Newnham, is available in bookstores.


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