Does travel to work come with a tax bill?

Tax Alert - August 2019

By Robyn Walker

In response to concerns (from unknown sources) that there was confusion about when employer-provided travel should be taxable, Inland Revenue has released a draft operational statement entitled “Employer-provided travel from home to a distant workplace – income tax (PAYE) and fringe benefit tax” (“draft OS”).

We suspect that the genesis of the draft OS is a concern following on from reforms to the treatment of accommodation back in 2014, where it was clarified in what situations employer provided accommodation was taxable, but there was no consideration of how flights or other travel costs associated with that accommodation should be treated.

The draft OS is intended to cover all employer provided travel, for example by car, taxi, plane, bus or train. 

The contents of the draft OS perhaps raises more questions than it answers, with the actual “rules” Inland Revenue is proposing only being really clear through the provision of examples. One also has to make the assumption that the same position will apply to travel from a distant workplace to home, despite the title of the draft OS only contemplating one-way travel. 

The starting position in the draft OS is that all employer provided travel from home to a distant workplace will be taxable unless one of four exclusions apply:

  1. The travel is one-off or very occasional
  2. The travel relates to a temporary posting or secondment
  3. The employee also genuinely works at a hometown workplace
  4. The employee works from home on specified days (and the travel relates to one of those days)

The travel is one-off or very occasional

Any incidental travel, for example attending a conference, will not be subject to tax. This rule applies regardless of whether the employee ordinarily works from home or at an office.

The travel relates to a temporary posting or secondment

Where there is a temporary (less than two year) posting to a distant workplace, the provision of travel will not be subject to tax. This would cover, for example, weekly return flights between cities for employees who are temporarily commuting. 

Any travel which is for more than two years will be taxable unless another exception applies. What is not clear in the statement is whether the travel is taxable from day one, or if the travel only becomes taxable after two years.

The employee also genuinely works at a hometown workplace

Where an employee has two (or more) workplaces that they work from, travel to a distant workplace may be work-related travel and not taxable. 

For example, Jim is based in Auckland and has a job based in Wellington. His employer agrees that he can work two days a week in the Auckland office and three days in Wellington. The travel between Auckland and Wellington will not be taxable. 

It is not explicit, but rather implicit that this exemption is intended to apply when an employee is working from employer offices in each location rather than working from home. However the draft OS does note that an employee can be travelling directly from home, rather than requiring them to go into the office prior to leaving for the distant workplace. 

The employee works from home on specified days (and the travel relates to one of those days)

The draft OS provides a view that a home can be a workplace depending on the arrangements between the parties. A home will not be a workplace if an employee can merely choose to work at home from time to time, there must be an employment arrangement which requires the employee to work from home on specified days. The home will be a workplace on the specified days, but will be a home on the other days. Any travel on a day that the home is just a home will be taxable.

The logic of this last exemption can be difficult to understand, as it represents a very inflexible approach and may not reflect commercial reality where employers and employees have a degree of flexibility to fit around work requirements (for example, if there is an important meeting on a day that an employee ordinarily works from home, they can work in the employers office that day and work from home on an alternative day when there are not work demands to be physically present in the office). 


To illustrate the intended application of these rules we replicate several examples from the draft OS below: Multiple workplace approach Under Adele’s employment arrangement, she is contracted to work at home on a full-time basis.  This means home is usually her sole place of work. Therefore, it can be considered to be her workplace on every work day. As any employer-provided travel from Adele’s home to a distant workplace (for example, for a specific meeting or purpose) is very occasional or could be considered to be one-off, it is not subject to tax.

Whether person has multiple workplaces 

Ruby lives in Auckland and works for a government agency. She has a permanent working arrangement where she works Monday and Tuesday at home. On Wednesday, Thursday and Friday, Ruby works at the agency’s Auckland office. Ruby is seconded to work on a 26-month project that requires her to work in Wellington on Thursday and Friday.  

As the project is for more than two years, the key question is whether Ruby has at least two Workplaces so that the multiple workplace approach applies. As Ruby normally works in the Auckland office on Wednesday, Thursday and Friday, any employer-provided travel from Ruby’s home to Wellington in relation to her work in Wellington would be treated as travel between multiple workplaces (the Auckland office and the Wellington workplace).  

Therefore, the multiple workplaces approach would apply in relation to this particular employer-provided travel and it would not be subject to tax. 

Whether home is a workplace when a person is permitted to work at home 

Leo lives in Tauranga but the company he works for is based in Auckland. Under his employment contract Leo can work up to two days a week at home in Tauranga. The days that Leo works at home can vary depending on personal and business convenience. Leo’s employer provides him with travel between his home in Tauranga and the Auckland office in the form of plane flights and connecting taxis. 

This is an ongoing arrangement, so the main question is whether Leo has at least two workplaces so that the multiple workplace approach applies. It is important to determine whether Leo’s home is a workplace. Leo does not have specified days where he works at home, which means the Commissioner will not accept that his home is a workplace for any particular day, for the purposes of the multiple workplaces approach. 

Therefore, as Leo only has one workplace (the Auckland office) the multiple workplace approach does not apply in relation to this employer-provided travel, which is subject to tax. 

(If Leo and his employer had a different arrangement where Leo had specified days where he was required to work from home (for example, Monday and Tuesday), then home would be accepted to be Leo’s workplace on those days.)

Whether home is a workplace when person required to work at specified places on different days 

Phil is contracted on an ongoing basis to work Monday, Tuesday and Wednesday at his home and Thursday and Friday at a distant workplace. This ongoing arrangement is expected to last for more than two years. Therefore, the key question is whether Phil has at least two workplaces (the possibilities are home and the distant workplace) so that the multiple workplace approach applies. 

It is important to determine whether home is a workplace. In this circumstance, home is clearly a workplace on Monday, Tuesday and Wednesday, and employer-provided travel to the distant workplace relating to those days will not be taxable. An example of this would be attendance at a conference or meeting on one or more of those days. 

But on Thursday and Friday Phil does not work from his home, so home is still his home for these purposes on those days. Consequently, employer-provided travel from home to the distant workplace will be travel from home to work (and taxable) when it is undertaken for the purpose of getting Phil to that distant location, so he can work there on Thursday and/or Friday. 

This means employer-provided travel from his home to a distant workplace on Monday, Tuesday or Wednesday will be taxable, if the travel is undertaken so Phil can undertake his work on Thursday and Friday.

What if you’ve been doing it wrong?

The draft OS proposed that Inland Revenue will apply the positions outlined in the draft OS once it is issued in final form. Employers who may now consider that some travel being provided may actually be taxable will not need to revisit past tax positions, but will need to apply the rules going forward. 

Next steps

We recommend that employers providing employee travel consider the application of the draft OS to existing arrangements. Submissions are being taken on the draft OS until 6 September 2019. 

Please contact your usual Deloitte advisor if you would like more information.

When is travel subject to PAYE and when is travel subject to FBT?

If employer-provided travel is taxable, the question then moves to whether it is taxable in the hands of the employee through the PAYE regime, or whether it is taxable to the employer through fringe benefit tax (“FBT”). The general rule to distinguish between PAYE and FBT is to think about who has incurred the cost of the travel. If the employee is incurring the costs and then being reimbursed by the employer or receiving a travel allowance the PAYE regime will apply. If the employer is paying for it directly (either through directly booking and paying for the travel, or the employee using an employer provided credit card to pay for the travel), then the FBT regime is in play. For travel other than by motor vehicle, any travel benefits will be an “unclassified benefit”.

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