The introduction of the exemption is a welcome change that allows employers to pay for their workers’ public transport costs without worrying about an FBT liability. The treatment also brings subsidised public transport in line with carparks provided on an employer’s premises, which have traditionally benefitted from an FBT exemption.
The exemption applies to certain types of subsidised “public transport fares” provided by an employer from 1 April 2023 (s CX 19C of the Income Tax Act 2007). The exemption covers subsidised travel on public transport such as a bus, rail vehicle, ferry or cable car. For example, an employer that provides their employee with a free monthly bus pass for commuting between home and work may enjoy the exemption. The exemption does not extend to air travel, taxis, shuttles and ride-sharing services such as Uber.
Importantly, to qualify for the exemption, employers must subsidise the public transport fare “mainly” for the purposes of the employee travelling between their home and place of work. However, incidental private use may occur without upsetting the exemption. It is the responsibility of the employer to ensure that the requirements of the exemption are being met. To prevent an FBT liability arising inadvertently, employers should carry out measures to ensure that the subsidised fares are not used for private travel (apart from incidental use). This could include, for example, explaining to the employee that the fare is mainly for the purposes of travel between home and work and obtaining a signed declaration from the employee to that effect.
Employees who use on-demand services may also enjoy the benefit of the FBT exemption where the services form part of the public transport providers network and fares are charged. On-demand public transport services are offered in areas which are underserved by existing public transport options.
Employer provided subsidised transport fares that are partially funded by the Total Mobility Scheme may also be exempt from FBT under s CX 19C.
Employers should also be aware that a different tax treatment applies where the employer reimburses the employee for public transport fares directly or pays a travel allowance. These types of payments are not subject to FBT, and the exclusion is not applicable. The reimbursement or allowance for travel between home and work will be taxable to the employee and subject to PAYE.
