The Financial Review reported yesterday that airlines are suffering substantial drops in corporate travel as law firms, investment banks and corporations start demanding executives and employees fly, heaven forbid, economy. Chairman of Asia Pacific Aviation, Peter Harbison, claimed that he had “never seen any downturn in premium travel like we’re seeing at the moment.”

The Australian premium aviation sector is certainly not the only casualty of the growing financial crisis, with the New York Times noting last month that the market for private jets has collapsed. Richard Santulli, the chief executive of Netjets, the private jet company owned by Warren Buffett’s Berkshire Hathaway put it rather bluntly, noting that “the jet market stinks.”

The market for corporate aviation was certainly not helped by the dimwitted CEOs of Ford, General Motors and Chrysler, who showed last months that executives are not only greedy, but they are also stupid, when they flew to Washington to beg for taxpayer money in private jets.

While a slowing economy has put the brakes on luxury corporate travel, one small solace for jet-setting Australian executives is the knowledge that their $30,000 first-class airfare or their $200,000 private jet flight is being partly funded by Australian taxpayers. That is because Australian taxation rules allow a deduction for travel expenses so long as the expense was incurred in gaining or producing assessable income (except where the outgoings are of a capital nature, private or domestic nature or relate to the earning of exempt income).

Therefore, if Frank Lowy, Eddie Groves or Rupert Murdoch choose to fly their private or company jet to New York for a board meeting, the cost of the flight is perversely, fully deductible. This of course, has the direct effect of reducing the company tax payable by Westfield or New Corporation or any other entity which sees fit to fly its executives non-commercial.

(The situation is different in the US, which in 2004 reduced the tax deductibility of private jet use such that corporations are ‘only’ able to deduct from taxes “the rough amount of a first-class ticket, far less than private jet travel costs.”)

While US Congress has taken active steps to prevent executives from being subsidized by taxpayers by claiming write-offs for private jet costs, the same is not the case in Australia. When Crikey contacted the ATO for clarification, it was referred to an irrelevant private ruling ATO2001/329 concerning deductibility of air-fares incurred by a taxpayer while on a work-exchange program in the United Kingdom. A tax expert from a leading Big Four accounting firm told Crikey that in his experience, corporate air-travel was fully deductible permissible so long as there was a sufficient link to the earning of assessable income.

With the Federal Budget soon to be in a significant deficit position, perhaps one small area of tax reform could be for the Labor Government to limit the tax deductibility of corporate air travel to the value of the cheapest available “economy” fare. Until that happens, next time you’re squashed in the back end of the Qantas 747, take comfort in the fact that you paid for a very small part of Frank Lowy’s private jet taxiing on the next runway.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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