CAN I CLAIM MY HOLIDAY AS A RENTAL EXPENSE?

You have a rental property. Can you claim your holiday as an expense? If you spend time travelling as part of your business you can claim business travel as an expense. A good way to prove the business portion of your travel expenses is by keeping a diary of your travels.

In addition to keeping invoices, receipts and tickets you should also keep details of:

• the date of the trip
• your itinerary
• the cost of car hire, and air, bus and taxi fares
• the cost of accommodation, meals and incidentals
• the time spent on business and non-business activities
• letters of introduction
• business contacts/cards
• firms visited
• business conducted/reasons for the trip/visit to firm

So how does the rental pay for my holiday?
Well, the first thing is to remember that there is no such thing as a free lunch – or a free trip – unless you win a competition or have a wealthy benefactor!  However, there are such things as a tax-deductible trip, if not 100%, at least in part.

If you’d like to claim your holiday as a tax-deductible expense, then you need to

1. be visiting your rental property which is in your holiday destination on on the way to it
2. pre-plan all business activities related to it, i.e. set up your business appointments, e.g. real estate agents, insurance brokers, accountants, lawyers etc, before you go on your trip.  That makes it really clear why you are going.  Plus, keep records as per the list above.

Then, your LTC/trust/partnership etc can claim tax deductions for some or all of the trip and other necessary expenses: hotels, car, meals, travel etc. Note however that there are some gotchas:

That leather jacket is not tax-deductible
Let’s say you are in Queenstown, and you see a nice leather jacket.  So, you buy it.  The trip is 100% tax-deductible, because it meets all the criteria above.  Can you claim the leather jacket?  No.  The guideline is “what is the nexus between this expense and the business activity?”  If there is no clear link or nexus, then the item is not tax-deductible. In this case, what does a leather jacket have to do with your rental property?  Nothing.  So it is clearly not tax-deductible.

Don’t go overboard with your expenses.
Always remember that tax concessions allowed are based on what the hypothetical “reasonable” person would do.  A reasonable person would not eat out at the swankiest restaurant every night they were away.  They might do that once, but not every night.  So, don’t get carried away.

Non-business parts of the trip are not deductible
Let’s say that you arrive in another part of the country to inspect your rental property, meet with suppliers and possibly purchase another rental. You have a few days’ worth of appointments set up, but you have planned to also take a few days to rest up as well.  The total trip is 10 days, with 3 days’ business pre-planned, and the rest being vacation.  Therefore, you cannot claim the entire trip as a business expense. Instead, work out the proportion related to business (30%, in this example), and claim that percentage of the costs.

Can we claim for both of us then and the kids too?
Highly unlikely. Your children are likely not active working partners of your LTC etc, so you would have to make further adjustments to exclude costs related to their stay.  What about your spouse or partner?  Well, is your significant other a part of the business, e.g. a director of the company? A trustee of the trust (that owns the rental)? Are they actively involved in the taxable activities of the LTC? Is the firm/professional you are meeting at your destination expecting to meet both of you? Then likely yes you can claim.

Questions?  Please feel free to contact us.  And for clients, before you go away, please please please contact us.

See also: what the IRD say.