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Sometimes employers pay cash allowances to an employee for travel between home and work.
A cash allowance paid to an employee for travel between home and work is tax-free if:
- the amount paid reimburses an employee's additional transport costs, and
- there are one or more special circumstances.
What special circumstances are
Special circumstances are where the employee:
- is working outside the normal hours of work (eg, in overtime, shift or weekend work)
- needs to carry work-related tools and equipment (eg, usually they take the bus but must use other transport to shift work-related gear)
- is travelling to fulfil a statutory obligation
- has a temporary change in workplace
- has some other condition of their job, or
- has no adequate public transport system that serves the workplace.
Calculating the tax-free amount
For most of these special circumstances, the tax-free amount is:
the actual cost of travelling between home and work - the employee's usual transport costs
If you pay a travelling allowance because there's a lack of adequate public transport, only the first $5 of the daily travelling allowance is taxable. Any additional amount is tax-free.
You can use our mileage rates if the actual cost per kilometre is not available.
What do I have to do?
- Add the tax-free amount of the allowance to your employees' net salary or wages (ie after PAYE) when you pay them.
- Do not show the tax-free amount on your Employer monthly schedule (IR348).
- Show the total amount of the tax-free allowance paid in your wagebook.