Last month, we highlighted two Inland Revenue (IR) draft statements regarding the income tax and Fringe Benefit Tax (FBT) implications of travel by car between home and work. This article continues the discussion about exemptions that might apply to treat this travel as non-private.

Income tax deductions

Briefly, a deduction is allowed for expenditure incurred for the business use of a motor vehicle. In this context, ‘business use’ means travel undertaken by the vehicle wholly in deriving the person’s income. There is no apportionment within these rules – if travel by car involves both private and business purposes, the travel will be treated as private and therefore, non-deductible. That said, IR accepts in some circumstances, an element of private travel will not affect the overall position that the travel undertaken is for business.

Two journeys

A journey may involve an intermediate stop between two points. If the intermediate stop is not incidental to the overall trip, the travel can be treated as two journeys. In such cases, one journey may be treated as private and the other business. If not, the travel is both private and business, and the motor vehicle costs will be non-deductible.

Incidental private use

The draft statement on income tax deductions provides two examples of an incidental private benefit when travelling by car.

• The business travel inherently achieves a private objective, and the total distance travelled remains unchanged. For example, stopping at a cafe en route to a business meeting to buy lunch (they don’t detour to the café).
• The person’s travel in the car is incidental to the business purpose of the travel. For example, the use of the car is essential to transport bulky business equipment.

In these cases, incidental private use can be ignored.

Minor or insignificant private use

This exemption is a long-standing practice and relates to the situation where a person makes a detour for a private purpose that adds to the overall distance travelled. If this occurs, IR will accept that private travel by car will be minor or insignificant if the detour taken:

• does not exceed approximately 5% of the journey; and
• is less than approximately 2 kilometres.

It is important to note that both conditions must be met.

FBT

If an employer provides a motor vehicle to an employee and the vehicle is available for private use, an FBT liability may arise. In this context, the exemptions for incidental private use and minor or insignificant private use may also apply. If so, the motor vehicle provided to the employee will not be considered available for private use.

Statutory exclusions

The FBT rules include further statutory exclusions relating to motor vehicle benefits. Briefly, these include:

• work-related vehicles;
• emergency calls to provide certain essential services (e.g., operating machinery, maintenance of local authority’s services, relating to the supply of energy or fuel to the public) or emergency services relating to health and safety;
• business trips of at least 24 continuous hours

For more detail on these statutory exclusions, refer to Interpretation Statement IS 17/07 Fringe benefit tax – motor vehicles.

Vehicles taken home

The draft interpretation statements clearly set out IR’s view that taking home a vehicle for security reasons or to recharge an electric vehicle is private travel.

Last word

This and last month’s articles about travel by car between home and work highlight the complexities involved in determining whether this travel is private. IR’s guidance on this subject will be a useful resource to help navigate these tricky waters.