Inland Revenue (IR) recently closed consultation on two draft statements regarding motor vehicle travel between home and work. The answer to whether this travel is private is key to determining any tax implications.

The draft items cover tax deductibility and fringe benefit tax (FBT) implications for travel between home and work. Once finalised, these items will replace the 2004 guidance and will reference current legislation and recent case law. The updates also consider cases where electric vehicles are charged at home.

Starting position

The general position is that travel by car between home and work is private. Accordingly, this expenditure will be:

• non-deductible (for a self-employed taxpayer, partner in a partnership, or a close company that is eligible and has elected to apply the deductibility rules for motor vehicle expenditure instead of the FBT rules); or
• subject to FBT (for an employer who makes available to an employee a motor vehicle for private use).

This principle, rooted in century-old case law, remains unchanged by legislation.

Case law exceptions

Established in case law are four exceptions to the general position stated above. Briefly, these are:

Transport of essential equipment or goods

A vehicle is necessary to transport equipment, instruments or other items (goods) essential to the taxpayer’s or employee’s work between their home and workplace. The key criteria to be satisfied for this exception is that

• It is necessary to transport goods between the workplace and home for work; and it is impractical to do so without a car (e.g. because the goods are bulky or high in value).

Itinerant work

The taxpayer's or employee's work is considered itinerant, with 'itinerant' being defined by the nature of the work rather than simply involving moving between locations. Criteria to be satisfied for itinerant work:

• Home is the base of operations.
• The nature of the income-earning activities or employment duties is such that travel is essential to carrying on the activity or duty.
• The work undertaken at various workplaces during the day, or sequence of workplaces and periods of time spent at each workplace vary and are unpredictable. Therefore, it is impractical for the taxpayer or employee to carry out the income-earning activity or employment duty without using a car.
• The taxpayer or employee can be regarded as travelling in the performance of their work from the time of leaving home.

Emergency calls

The taxpayer or employee responds to emergency calls at home and their responsibility for the outcome begins before they leave home. This exception is different from the legislative exclusion in the FBT rules. Criteria to be satisfied for emergency calls:

• The nature of the work must require part of the taxpayer’s or employee’s work to be carried out at home.
• The taxpayer’s or employee’s responsibility for completing the task related to the emergency call must begin while they are at home.

Home is a workplace

The taxpayer’s or employee’s home is a workplace or base of operations. This is more than choosing to work from home or doing some work from home.

The determining criteria to be satisfied for home being a workplace is that there are sound business reasons for working from home – every person who carries out the role must undertake the travel; and the travel is a requirement of the role. Other criteria include:

• A significant amount of work is carried out at home.
• There is significant storage of business goods or equipment at home.
• The activities carried out at home are closely integrated with the business.

We will discuss other exemptions in legislation and practice in this space in the December 2024 newsletter.