New tax laws on employee travel from April 1 2020

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Wellington, January 4, 2020

The Inland Revenue Department (IRD) has issued an Operational Statement (OS 19/05) to clarify and simplify the tax rules around employer-provided travel to distant workplaces; for example, a person who works in Wellington but lives in Auckland, or who may travel greater distances in working from home or at multiple workplaces.

Uncertainty over liability

IRD said that it was aware that many employers and employees are uncertain about when employer-provided travel to a distant workplace was subject to tax.

Some employers had also been treating all employer-provided travel to a distant workplace as not taxable.

So the Statement addresses that uncertainty by setting out IRD’s approach to determining whether employer-provided travel to a distant workplace is exempt or not.

The approach taken makes it easier to tell when this kind of employer-provided travel is exempt from income tax (PAYE) or fringe benefit tax (FBT).

Choice for employers

IRD recognises that some taxpayers may need time to implement this new approach.

Therefore, IRD does not expect taxpayers to apply the Statement to travel taken before April 1, 2020. However, taxpayers can choose to begin applying the approach outlined in this Statement from the date it was issued if they so desire.

Following is an extract of the IRD Statement which can be accessed here.

“The (IRD) Commissioner is aware that there has been significant uncertainty regarding whether employer-provided travel (by car, taxi, bus, train or plane) from home to a distant workplace is subject to income tax, so PAYE must be deducted, or to fringe benefit tax (FBT). This Statement addresses whether this type of travel is subject to tax and outlines the approach to the tax treatment in this area which the Commissioner will, on a prospective basis, accept as correct. To reduce uncertainty and foster taxpayer compliance, the Commissioner has deliberately sought to take a pragmatic approach as far as this is possible within the law.

Some definitions

In this Statement, employer-provided travel means (a) travel that an employer organises (b) travel that an employee organises but an employer pays for (c) travel that an employer reimburses an employee for; or (d) an allowance paid to an employee by their employer that is paid to cover the cost of travel to a distant workplace.

Home means a dwelling you use as a residence.

Hometown means the city or town where your home is located.

A distant workplace is a workplace that is not within reasonable daily travelling distance of the employee’s home.

When an employer physically provides the travel or pays for it directly, then that travel may be subject to FBT, which the employer must pay.

If the employee is provided with an allowance or is reimbursed in relation to the cost of the travel, then the employer may have to deduct and pay PAYE in relation to that payment.

“We are aware that many employers and employees are uncertain about when employer-provided travel to a distant workplace is subject to tax. Indeed, some employers have been treating all employer-provided travel to a distant workplace as not taxable.

“This Statement addresses that uncertainty by setting out the Commissioner’s approach to determining whether employer-provided travel from home to a distant workplace is subject to either income tax or FBT or not taxed.”

Source: www.ird.govt.nz

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