Tax rules on employer-provided travel from home to a distant workplace
In December 2019, Inland Revenue introduced Operational Statement OS 19/05 to outline the IRD approach to employer-provided travel from home to a distant workplace. This will not will not be applied to the taxpayers until 1 April 2020. IRD recognises that there has been significant uncertainty regarding employer-provided travel from home to a distant workplace and therefore does not require taxpayers revisit their tax positions taken before publication of the Statement unless tax avoidance action were taken.
General rule
The cornerstone of IRD approach is that in general employees should bear costs of getting to work on their own as it’s them who choose their home location. As it is private expenditure payments in any form made by employers for their employees’ home-to-work travel are usually subject to tax, either to PAYE or FBT.
Exceptions from the general rule
IRD describes four situations where travel from home to a distant workplace is not taxable.
1. The travel is one-off and very occasional.
For example, an employee that works full time in Auckland office flies to Queenstown to a conference. As it is a one-off trip it is not taxable.
2. The travel relates to a temporary posting or secondment (up to two years).
To use this exception employers are required to have evidence that at the time when requirement for travel arose, they reasonably expected that employees would not travel to a distant workforce for more than two years. The best document to prove it is the employee’s terms of employment, however, other documents such as board minutes, planning documents and correspondence may be helpful, too.
If initial plans are changed and now the employee is required to work at a distant workplace for more than two years the travel is going to be taxable from the date the expectation changed.
3. Travel is between multiple workplaces.
If an employee has got two or more workplaces that they work from, one in the employee’s hometown (not their home) and one distant the direct travel from employee’s home to the distant workplace is treated as work-related travel and not taxable. This applies also in situations when an employee was using an employer-provided car.
4. Home is recognised as a workplace.
If an employee can choose to work at home from time to time that is not enough for treating their home as a workplace. From IRD point of view an employee’s home is a workplace if it is obvious from his employment agreement or other documents that the work should performed at an employee’s home every working day or on specified days. If an employee travels to a distant workplace from home on the day when he or she is expected to work from home the travel is not taxable.
For example, Tina lives in Wellington and works for a company that has got branches all over New Zealand. Tina works from home on Mondays, the other days she is in the company’s Wellington office. The company has launched a new three-year project in Palmerston North so Tina has to travel there on Mondays and Thursdays. As Tina’s home is clearly her workplace on Mondays employer-provided travel is not taxable. However, the travel from home to Palmerston North on Thursday is taxable as on Thursdays Tina’s home is not considered to be her workplace.
Summary
As the Statement applies from 1 April 2020, employers that contract or considering to contract their employees to work at a distant workplace should take into consideration tax consequences of their decisions and if necessary, adjust their employment arrangements accordingly.
The Author
The article is written by Giles Ellis, a business adviser at GECA Chartered Accountants. If you want to know more about tax consequences of employer-provided travel feel free to get in touch with our friendly team on 0800 758 766.
Please note that this blog post should be considered as a general overview but not as a tax advice relevant to your situation.
