ATO cracks down on dodgy deductions for bogus business study tours

Businesses have been warned to keep an eagle eye on their tax deductions after the Tax Office released a new alert noting a rise in the number of holiday packages being dressed up to appear as work-related study tours.

While the Tax Office has noted a rise in the number of these packages, it nevertheless says businesses need to ensure their deductions are accurate.

“It is still incumbent on the taxpayer, of course, to do the relevant split between business and private expenses. The Tax Office has written quite extensive notes on this,” CPA Australia spokesman Paul Drum warns.

The Tax Office released an alert yesterday about arrangements where a taxpayer claims a deduction for expenses incurred in relation to educational courses and seminars where the relevant expenses don’t have a solid enough connection to the taxpayer’s employment.

“These expenses include the costs for domestic or overseas travel on a holiday activity or to a holiday destination,” the alert warns.

While a Tax Office spokesman told SmartCompany this morning this problem has been an ongoing issue, the agency has noticed “an emerging risk” over the past view months.

“Basically, we’ve noticed these schemes being marketed in various places and it’s come to our attention,” the spokesperson said.

“We don’t have any statistics on how many people have done anything wrong, but it’s something that we are monitoring and looking into at the moment. The alert is to warn people carefully about these things.”

ATO assistant commissioner Bruce Collins told the Australian Financial Review the agency has identified about 20 separate promoters that are marketing these types of packages dressed up as holiday-style getaways.

“These type of offerings encourage people to go on holiday and engage in a ‘very small set of activities’ which qualify as a work-related study,” he said.

An example would be a professional who attends a seminar in an exotic location, where the actual work-related activity only accounts for a minority of time within the larger holiday, such as a few hours out of a two-week long holiday.

The problem occurs when the professional starts deducting expenses that are not related to the business part of the trip.

Institute of Chartered Accountants tax counsel Yasser El-Ansary says while these newly identified holiday packages do not necessary state outright attendees can deduct their activities for tax purposes, he says the Tax Office will still take issue with them if the implication is strong enough.

“Any organisation that makes assertions about the tax deductibility of various costs can only do so if it holds an appropriate accreditation through the tax practitioners board that recognises the tax expertise of the individual providing the advice.”

“Taxpayers should definitely be cautious and guarded about how they approach this.”

These experts say businesses need to ensure they keep a detailed list of all expenses incurred during these trips and determine whether all of their purchases are business-related before they deduct them. When in doubt, they say, contact a tax counsel.

And while Drum says the agency may have noticed a rise in these types of activities lately, he states this is an ongoing issue and all businesses need to be aware of their obligations.

“This isn’t really a new problem. They may have found a number of new activities, but they’ve given alerts to the market before.”

“Just because you go to a conference doesn’t mean the entire thing is deductable. It’s definitely incumbent on the taxpayer to perform the relevant split.”

Drum says this type of activity is quite a “trap”, especially for younger professionals, as they may not realise what they’re doing is wrong.

“The message is that you can’t assume what you’re doing can be deducted. You have to determine that what you’re deducting is a relevant business-related expense.”