Tax Updates: 7 October 2024

Welcome to this week’s review of tax issues where Richard comments on what’s been happening in the world of tax over the past week. If you have a question or would like a second opinion on any national or international tax issues, please contact Richard via email at [email protected].

Home to work travel in a motor vehicle

I would be very surprised if you have not, at some stage, been asked questions by your clients as to whether the motor vehicle costs incurred in getting themselves from their home to their place of work were tax deductible or whether the travel between home and work by one of their employees in a motor vehicle provided to the employee by the client triggered FBT implications for the client.

I would be very surprised if you have not, at some stage, been asked questions by your clients as to whether the motor vehicle costs incurred in getting themselves from their home to their place of work were tax deductible or whether the travel between home and work by one of their employees in a motor vehicle provided to the employee by the client triggered FBT implications for the client.

Until recently, answers to both of these questions could be sourced from a single Inland Revenue (IR) document published in 2004 – IS3448: Travel by motor vehicle between home and work – deductibility of expenditure and FBT implications.

However, after two decades of being able to refer to the single publication, IR has now decided to update the previous content with more modern relevant examples and updated legislative references in two separate documents – one titled “Income tax – deducting costs of travel by motor vehicle between home and work”, with the other titled “FBT – travel by motor vehicle between home and work”. At present, both draft interpretation statements (IS) use the reference PUB00453. The two draft interpretation statements are also each accompanied by a 7-page fact sheet document – so you have the choice of the intensely detailed 54-page and 57-page (respectively) full interpretation statements on the issue or the succinct (just get straight to the point) 7-page versions. My recommendation, post having slugged my way through the 54-page first draft IS, would be to hit the fact sheet first, and if in doubt, then go to the relevant section of its big brother. You can find all these documents here.

The income tax document basically has application to self-employed taxpayers, partnerships, and to those close companies who have elected to use the subpart DE rules instead of applying the fringe benefit tax (FBT) provisions (collectively referred to in the draft IS as “relevant taxpayers”). So, the focus of the commentary is on how subpart DE (which is a specific deductibility provision that supplements the general permission and overrides the private use limitation) determines the deductibility of motor vehicle expenditure for relevant taxpayers. Unlike other taxpayers who will simply rely on satisfying the general permission to claim motor vehicle-related costs.

The recommended starting premise for both the income tax and FBT issue is that home to work travel is private in nature. However, in both draft IS, if your client’s scenario can fall within one of the so-called four case law exceptions, then the otherwise private home to work travel will be considered business use.

In brief, the four case law exceptions are:

• A vehicle is necessary to transport equipment or instruments (because of bulk or other special characteristics) that are essential to the taxpayer’s work between their home and workplace. Note that there is an expectation here that the taxpayer actually then carries on working at their home (and not purely for convenience purposes), using the transported equipment in that regard;

• The taxpayer’s work is itinerant (home is their base of operations, and they undertakes work at various workplaces during the day, or the sequence of workplaces and the periods spent by the taxpayer at each workplace vary and are unpredictable);

• The taxpayer responds to emergency calls at home, and their responsibility for the outcome begins before they leave home (so expectation that they take a call at home, for example, which cannot be resolved over the phone, which then requires them to travel); or,

• The taxpayer’s home is a workplace (or base of operations). To satisfy this exception, the taxpayer must meet specific criteria. It is not sufficient that work is carried on at home.

It should also be noted that for FBT purposes, further statutory exclusions also apply for work-related vehicles, emergency calls affecting health, life, or the operation of essential machinery or services, and business trips of more than 24 hours.

The Commissioner’s view set-out in IS3448 with respect to a vehicle being taken home and garaged for security reasons, also remains unchanged in the updated IS – the travel is considered private use. Consequently, in the eyes of the Revenue, your client would need to still satisfy one of the four case law exceptions (or the statutory FBT exclusions) to treat the travel as a business journey and/or not trigger an FBT exposure for them.

Both of the draft IS have a number of flow charts and examples to illustrate the commentary. If you would like to make a comment with respect to either item, the closing date is November 6^th.  

This article was originally published through the ‘A Week In Review’ newsletter. If you would like to receive Richard’s tax updates every Monday morning, you can subscribe here.