Starting April 1 this year, the Inland Revenue Department will apply a new tax law for employee travel. This law simplifies the tax rules with regard to employees travelling long distances or to multiple locations for business reasons.
The IRD noted that tax rules covering employee travel have up to this point remained vague amongst employees and employers.
Many employers have considered all work-related travel to be non-taxable, but were unsure. The introduction of the new tax law will clarify whether particular instances of employee travel are free from PAYE income tax or Fringe Benefit Tax.
Fringe Benefit Tax can be applied when the employer compensates for any travel fee, whereas if the employee is given a travel allowance or is reimbursed for the cost of travel, the employer may need to deduct and pay income tax (PAYE).
The IRD Statement defines employer-provided travel as follows:
Travel an employer organises;
Travel that an employee organises but an employer pays for;
Travel that an employer reimburses an employee for; or
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; and
A distant workplace is a workplace that is not within reasonable daily travelling distance of the employee’s home.
The IRD is aware that taxpayers will need to make adjustments in light of this new policy, and therefore will not pressure employers to apply this rule to any travel done prior to the law’s launch date. Nevertheless, taxpayers have the option to apply this tax rule from the date of issue.