Monday -Friday - 9:00 - 18:00 New Zealand Time


Generally, travel costs incurred from traveling between home and work are a private expense for the employee. This is because it reflects the employee’s personal choice regarding where their home is.

Some employers may provide an allowance for travel costs which is usually taxed under PAYE. However, CW 18 of the ITA exempts some allowances that are received by the employee from the employer to reimburse “additional”  transport costs arising from travel between work and home.

What are additional transport costs?

Additional transport costs to an employee are costs to an employee of traveling between their home and place of work that are more than what is ordinary.

Summary of Approach

The commissioner will consider 3 steps to determine the extent to which the exemption will apply.

  1. Is at least one of the factors required for the exemption to additional transport costs present? (The factors are listed below)
  2. Did the employee incur additional transport costs in connection with their employment and for the benefit or convenience of the employee?
  3. What portion of travel costs qualify under the exception?

Only the amount incurred for additional transport costs is deductible so if an employer is paying an allowance for ordinary travel to and from work as well, this will not be deductible.

Factors required for an Exemption

At least one of the following must be met:

1. The day and time of day

e.g., employees start shift at 4pm and finish at 1am. There is public transport available at 4pm not at 1am so they need alternative transport that will cost more than public transport.

2. The need to transport items during the course of employee’s work

e.g., employee is required to use transport which they are providing/paying for to move items such as plant, machinery or equipment. E.g., employee catches train to work but on Monday they must bring their car so they can collect something from warehouse for their employer.

3. Fulfilling an obligation under an Act

e.g., Due to the nature of the employment of the employee, they must get Covid tested every week under a public health order. An allowance to cover this additional transport cost to be tested would be exempt.

4.  Temporary change in the employee’s place of work for the same employer

e.g., Employee usually works in Auckland CBD but is seconded to the North Shore branch for a few months. The secondment is temporary (under 2 years) and so is treated as temporary and so an allowance provided would be exempt, given the other 2 steps are met.

If the employee is seconded for longer than the 2-year period, the travel can no longer be treated as temporary and so would not qualify.

5. Any other condition of work of the employee

This factor has limited application but refers to any other factor occurring at the workplace of the employee that would result in an increase in the cost of traveling

6. Absence of adequate public passenger transport service that operates on fixed routes for employee’s place of work

e.g., The employer is located in an area where there is no public transport service.

The calculation for the exempt amount would be as follows:
If employee incurs $60 a week of transport costs to get to work, the additional transport costs are the amount by which the costs are more than $5 a day So…

60 / 5 (days a week) = $12 a day

12  – 5 (the threshold amount) = $7

7 x 5(days a week) = $35 are exempt 

If the employer is providing an allowance for $60 a week, then only $35 will be exempt and the other $25 would be subject to tax.


For more specific advice regarding exempt payments, get in touch below.

New Zealand Tax Accountant.