Getting Rid of Tax Receipts While Travelling

I recently did a technical presentation in Bangkok to a group of family business people. And while the material, and discussions afterwards, were enlightening, I was eager to see some of this great city.

A group of us went to the Skybar. It was incredible. The view was amazing. The people (except me of course) were dead set beautiful and the atmosphere was electric. I had one night in this city and I wanted to really experience it.

The guys with me were also present at my seminar. The conversation moved around but it inevitably came back to how our business tried to impact on families that were branching overseas – and Asia in particular.

It then became my time to buy a drink for the group.

A beer cost AUD $25. Ouch.

And there was 16 of us present.

Double ouch.

Anyway. I sucked it in and bought a round. At no stage could I have done a runner on the group. Firstly it is not cool and secondly it would have been the kiss of death for any fledgling relationship.

But the question hangs. Was it fair of me to charge this cost to my business? How do you make sure everybody is equal? How do you balance up needs of different owners? Can I get a tax deduction? And how do you keep receipts for all this stuff?

Enter the concept of a travel allowance. These things basically take away the need to keep receipts while travelling so come tax time your life managing a family business is a lot easier.

So what is a travel allowance?

It is a payment to cover the costs while an employee is travelling away from home for work. Typically a travel allowance covers the cost of meals, incidentals and accommodation in Australia but only the cost of meals and incidentals while overseas – and it does not need to be backed up tax invoices.

You can pay a travel allowance to any employee even if they do not receive a salary. This is important in a family business as family members are often working directors but do not receive a straight PAYGW salary.

How much is the travel allowance?

Each year the Tax Office issues guidelines as to how much the allowance can be for a person. The current allowance rates are at TD 2016/13 and most people find the rates relatively generous.

And the rates are staggered to allow for different levels of seniority in the family business to be recognised.

The main benefit

If you are paid a bona fide travel allowance while travelling you can claim a tax deduction for the same amount without keeping receipts to prove it.

This is important. Most often people, especially family members, will give up on the tax deduction as it is simply “too hard”. Receipts will also be lost and the receipts could be in another country so they are borderline useless in understanding what you did a while back.

The word “bona fide” is important. You have to have incurred expenditure in relation to your travel.

So if you chose to stay at a mates house for free in Sydney and you did not pay a sent for the trip you cannot claim a travel allowance.

Privacy

The other benefit of a travel allowance is that it gives a family member a level of privacy. Sometimes in a family business the families details can become quite involved. Mums might be looking at every penny and the control could become stifling. So if a family member spent a bit too much one evening – it is good to know that the allowance simply covers the cost without having to “fess up” to ones indiscretions.

An allowance is not forced upon you

Simply because the Tax Office sets a maximum rate for a travel allowance does not mean that you must pay this amount to employees in your family business. This is a maximum rate. Your family business can choose how much to pay staff while travelling.

Of course the words “bona fide” means that the payment must be realistic and not a tax fiction. Paying your staff $6 a day for accommodation, meals and taxi fares is not a bona fide allowance.

A travel allowance does not stop your legitimate tax claim

Of course there are many legitimate reasons why you have incurred more while travelling than the amount set by the Tax Office.

In this case you simply tally up the actual costs incurred while travelling and you claim these as a tax deduction – either personally or through your family business. The travel allowance is their to alleviate receipts. It does not stop you claiming legitimate costs.

Are you travelling?

Most often the concept of travelling is quite simple. However where a person is going on an extended trip it can become confusing – at what point in time is a person simply travelling through a city as opposed to living in a city?

The Tax Office have a general directive that if you are away from home for less than 21 days – you are travelling.

This is a guide of course and varies depending on the facts. So if you are say, a country sales agent in the family business you might be away from home for 6 months – but only sleeping two nights in one town at a time.

Equalisation

Importantly – the concept of travel among family members is a sensitive one. Petty jealousy can arise from family member to family member. Often travel is seen as a “perk” for working in the family business by some and a menial chore by others.

If you are in the family business – write up a policy on family members and travelling. Make it clear who can and cannot and the basis the decision is made. If it is really being done because they are family – own up to it. Likewise if the people travelling are doing so in the family business simply to make the family business great – clearly articulate that and discuss it among the family.

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Dare to Be Different – Choosing a Road Less Traveled Allowed Cummins Engine to Outstrip Competition

Follow the leader – or dare to be different – which works better? The Center for Simplified Strategic Planning challenges client teams to dare to be different – based on our experience of working with many companies, this approach works best. We have found that teams that try to follow the industry leaders or simply try to emulate other successful corporations often fall short of their long-term goals. Why? Your company’s strategy should be based on your strengths and weaknesses and your differentiation in the market, rather than follow a “copycat” strategy.

Cummins Engine and Caterpillar, Different Companies, Different Strategies

Faced with tough North American environmental regulations for heavy truck engines, companies who made engines had to make some tough decisions: Caterpillar decided to exit the market, while Cummins decided to remain. How can two companies look at the same external environment and come up with completely different strategies?

Caterpillar’s strengths lie in heavy equipment development and production for construction, agriculture and other markets; their expertise did not lie specifically in engine development
Cummins’ strengths lie in engine development and production

The key takeaway: Good strategy is based on recognizing a market opportunity and having the skills to take advantage of it. Caterpillar felt that their skill-set did not match the requirements for designing engines to meet the lower emissions standards and that their resources would be better focused on designing equipment for specific applications for growth. Cummins, however, strictly focused on engines, believed that their skill-set made them uniquely qualified to capitalize on the increasingly regulated environment. Both companies can be correct – good strategies are based on selecting markets that value your unique competencies. Cummins’ competencies around heavy truck engines allowed it to significantly increase market share when Caterpillar left the heavy truck engine market.

Growth in Emerging Markets

Just when engine manufacturers thought it couldn’t get any more difficult, the global game changed with the imposition of more stringent emissions requirements. Tough – yes, but made even more difficult because each region around the world has raised its standards, and each one has a different set of requirements. So, should they produce one engine to meet most of the requirements, sub-optimizing in trying to meet multiple requirements? Or should they develop a customized approach for each region? Cummins chose the latter even though, on the surface, it seemed less efficient. This strategy has allowed Cummins to penetrate foreign markets faster than its competition.

Now let’s take a closer look at how Cummins Engine dared to be different, and how they are being rewarded for their efforts.

How Cummins Chose this Strategy?

Emerging markets are often criticized for being able to compete on lower costs, due to a less stringent regulatory environment. As these markets develop, they not only see the financial benefits of industrialization, but also see the cost, primarily increased pollution. But as pollution becomes unbearable, countries are adopting increasingly strict environmental regulations. Will these regulations follow the regulatory standards that are set in North America? Of course not, that would be too easy! Emerging trends include:

Increased industrialization
Increased pollution
Increased regulations (but different for each region)

Heavy truck manufacturers located in these regions had to decide:

Should we develop the technology to meet the regulations?
Should we buy the technology and focus on production as demand continues to increase?

For many heavy truck manufacturers, the second option was more attractive because the required skill-set required for more environmentally friendly engines was not something that the manufacturers excelled at. Why not outsource the engine design?

Cummins saw these trends and assessed ways to meet the demand – one way they could have met the demand was by providing only the North American technology. However, Cummins had the foresight to understand that with the varying regulations, different solutions would be best for each region. So rather than proceed with “one size fits all,” they chose to pursue a “fit-for-market” approach. The regional truck manufacturers embraced the Cummins approach because this meant that they would not have to change their truck design in order to fit the Cummins engine requirements. Instead, Cummins would design an engine to meet their region’s environmental requirements. Their competitors were chagrined at this approach, as they had taken the “one size fits all” approach and this strategy slowed their engines’ acceptance in emerging markets.

Keys to Strategy Development

Understand your strengths and competencies; leverage these to your advantage
Know your markets; different markets have different requirements
Evaluate long-term trends (e.g., pollution acceptable moving to unacceptable)
Position your company to succeed by focusing on markets that value your unique skill-set