In certain circumstances an employee can receive a non-taxable allowance for the additional costs of transport from home to work.
What’s important here is that the cost of travelling from home to work is a personal cost. However, there can be additional costs.
Follow this three-step process to determine whether you can pay a non-taxable allowance for the additional cost of transport:
- Do any of the factors required for the exemption to additional transport costs apply? (See list below.)
- Does the employee incur the additional transport costs for the employer’s benefit or convenience?
- Calculate the additional transport costs and compare them with the allowance paid.
The factors that can give rise to the exemption for additional transport costs are:
- the day or time of day when the work duties are performed
- the need to transport any goods or material for use or disposal in the course of the employee’s work
- the requirement to fulfil a statutory obligation
- a temporary change in the employee’s place of work while in the same employment
- any other condition of the employee’s work
- the absence of an adequate public passenger transport service that operates fixed routes and a regular timetable for the employee’s place of work.
To get a fuller understanding of these factors, look at the Inland Revenue publication Operational Statement OS 23/01 which expands on the six points above and provides illustrations.
There is a risk if you pay additional transport costs and circumstances change, the employee might look upon the exempt income as part of their salary/wage package and not be happy about it being cancelled.
The reimbursement for any employee for any one day is limited to 70km.
