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Travelling allowances

Sometimes employers pay cash allowances to an employee for travel between home and work.

Definition

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 are special circumstances?

Special circumstances are where the employee:

  • is working outside the normal hours of work (for example, in overtime, shift or weekend work)
  • needs to carry work-related tools and equipment (for example, usually they take the bus to work but in this instance must use some other type of transport to shift work-related gear)
  • is travelling to fulfil an obligation for the employer
  • has a temporary change in workplace
  • has some other condition of their job, or
  • no adequate public transport system serves the workplace.

Calculating the tax-free amount

For all of these special circumstances, except lack of adequate public transport, the tax-free amount is the actual cost of travelling between home and work, less the employee's usual transport costs.

If you pay a travelling allowance because there's a lack of adequate public transport, the first $5 of the daily travelling allowance is taxable with any additional amount being 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 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.