Inland Revenue suggested the proposed public transport tax relief would fail

The tax authorities doubt that many employers will decide to offer their staff public transport subsidies, even with tax relief.

David White / Stuff

The tax authorities doubt that many employers will decide to offer their staff public transport subsidies, even with tax relief.

A plan to encourage greater use of public transport by changing tax rules for social benefits is unlikely to result in significant adoption, the tax government has advised.

But Auckland Transport is more optimistic, saying it expects interest from employers.

An omnibus tax bill released by Revenue Minister David Parker on August 31 proposed that public transport subsidies offered by employers to their workers would not be subject to employee benefits tax (FBT), either that these subsidies were mainly intended for travel between work and home. .

Parker focused on the rule change when he issued a statement to the media unveiling the legislation, although it included much larger changes to the proposed GST treatment of Airbnb reservations and Uber fares and, at origin, a KiwiSaver fee.

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The Inland Revenue (IR) advised Parker that excluding public transport subsidies from benefits tax could achieve “small environmental improvements” and encourage some employers to offer it as a advantage.

But he advised against the change, anticipating that it would not lead to significant behavioral change and could create further “distortions”, for example between employers who took advantage of it and others who instead chose to offer to their staff subsidized electric bicycles.

“Adoption probably won’t be large enough to significantly change employee behavior when it comes to commuting between work and home,” he said.

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He estimated the likely cost of tax relief at $9 million per year.

But he said that was based on his estimate of the amount of tax that would be forgone on subsidies employers could currently provide, rather than an assumption that it would lead to change.

IR said employers who have attempted to provide public transport subsidies in the past have faced significant compliance costs when setting up and operating processes to top up e-travel cards from employees or to arrange to be billed directly by public transport providers.

A number of large employers consulted had said the tax relief would not be very helpful to their staff because they had remote work sites, he said.

However, Auckland Transport spokesman Sam Stephenson said he had spoken to a number of employers who wanted to provide public transport subsidies but had been put off by the ‘benefits tax burden’ .

It has trialled subsidized transport with four companies, including Genesis Energy which has worked with Auckland Transport to offer its Auckland staff a special Hop Card which subsidizes staff travel by 25%.

The proportion of Genesis employees who used public transit to get around rose from 19% to 47% after the company moved offices in 2020 and began offering the subsidy, Stephenson said.

“We want to further develop the product we tested and be able to offer it on a large scale to more businesses in Auckland,” he said.

Genesis spokesman Chris Mirams said the proportion of its Auckland staff taking advantage of its grant was now just under 60%.

“Earlier this year, we extended the grant with Auckland Transport for another five years.

“We hope the decision to remove FBT will encourage companies to consider the role they play and how they can help their employees reduce transportation emissions,” Mirams said.

The proposed requirement that FBT-exempt subsidies be primarily for commuting could be met by ensuring that employer-subsidized Hop cards only operate between Monday and Friday, Stephenson said.

Deloitte tax partner Robyn Walker said employers would not be able to reimburse staff for public transport costs without it being treated as income subject to income tax.

She therefore assumed that employers would have to enter into agreements with transport operators to ensure that they and their staff could take advantage of the FBT exemption.

“I think everyone would agree that’s a great idea, but the mechanism for doing that is potentially administratively heavy,” she said.