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Guidance on a "reasonable daily travelling distance"

This item provides further detail on recently enacted legislation relating to work-related relocation payments.

One of the requirements of a "work-related relocation"[1] is that the relocation of the place where an employee lives is required because the employee's workplace is not within reasonable daily travelling distance of the employee's residence.

"Reasonable daily travelling distance" is not defined in the legislation. A number of submissions during consultation on the development of the policy and legislation in relation to the tax treatment of relocation payments asked for guidelines from Inland Revenue on what is meant by "reasonable travelling distance".

The information provided here is a guideline only. It is ultimately up to the taxpayer to form a view on what he or she considers to be reasonable. The guideline is based on the assumed time it would take the average person to drive the distance to and from work. There may be special circumstances surrounding why an employee or employer might consider a lesser distance or time to be a reasonable cut-off, such as if the person had a physical disability that limited their scope to drive long distances. The guideline also assumes that the employee will choose the most efficient route to work. Usually this will be the shortest route, but this may not always be so; a longer route may be quicker because of lighter traffic flows. An employee might also have a range of transport options, such as travelling by car, rail, bus or ferry. The guideline should be applied using the mode of transport, or reasonable combination of modes, that is quickest and most feasible in the circumstances.

The two key practical constraints on the daily travelling distance to and from work are the actual distance itself and the time it takes to travel that distance. Traffic density at normal travel times to and from work, for example, is a factor in limiting the distance that could be reasonably travelled because it extends the time taken to travel the distance. Traffic density should, however, be less of an issue if there is an adequate public transport alternative. Employees may be prepared to commute longer distances outside of the main centres because the roads are less congested at the time they travel.

The condition of the roads may also affect the distance that can be covered in a given time. For example, in some parts of the country, roads may be more winding than in other areas.

In terms of travelling time, we note that many employees are prepared to commute for up to an hour each way between home and work.

Furthermore, an employee is likely to factor in the aggregate time and distance travelled to get to work and back again when considering whether it is reasonable. A substantially shorter time on one leg of the journey may, for example, compensate for the other leg taking a long time.

Given the range of factors involved in determining what is "a reasonable travelling distance", it is not possible to accommodate them all within a precise formula. Only a general rule of thumb can be provided. In these circumstances, a guideline incorporating the various factors would be whether, taking the two legs in combination, the employee has to, on the relevant day, travel more than two hours at the time the employee needs to travel to get from home to work and from work to home. If this were the case, the distance between home and work would not be considered a reasonable daily travelling distance. Generally this equates to between 50 kms and 80 kms for each leg of the journey or between 100 kms and 160 kms, taking both legs into account, depending on the time of day, state of the roads and the mode of transport.

Example

Jessica was previously employed by Fantastic Enterprises in its Papakura branch, which is a relatively short distance from where she lives near the town of Miranda. Fantastic Enterprises requires a new branch manager in Auckland Central and Jessica moves to a house in Waitakere. Fantastic Enterprises wants to pay Jessica"s relocation costs tax-free. The issue is whether Miranda was within a "reasonable daily travelling distance" of the new work premises in Auckland Central. The distance from Miranda to Auckland Central via State Highway 2 is approximately 79 kms, and the travelling time for Jessica to start at 8.30 am is 1 hour 40 minutes. At night, Jessica usually works until 7 pm and her travelling time is about 55 minutes. Jessica has heard that some of her neighbours in Miranda travel the coastal route into Auckland which takes a shorter time, but is a longer distance.

Fantastic Enterprises can pay Jessica's relocation costs tax-free because:

  • the time it would have taken to travel the distance from Miranda to Auckland and back again using State Highway 2 would have been a combined 2 hours 35 minutes
  • alternatively, if Jessica chooses the coastal route (where each leg of the journey is 90 kms but the travel time is only 65 minutes), the combination of the two legs would have also exceeded two hours
  • similarly, if Jessica had used a combination of the two routes, her combined travel distance of 169 kms would take at least two hours.

1 See section CW 17B(4) of the Income Tax Act 2007. Under section CW 17B, an amount that an employer pays to or on behalf of an employee in connection with the expenses of the employee in a work-related relocation is exempt income of the employee.