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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 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.