Many companies, or even whole industries, offer their customers loyalty award-based incentives programs. These programs, such as the “Frequent Flyer” and “Fly Buys” schemes, are designed to reward customers for purchasing or using a company’s goods and services (or indeed, those of its affiliates). Can customer reward program benefits be taxed?
As a result of one particular court case, the Tax Office has come to accept that rewards received by employees in their personal capacities in respect of expenditure paid by their employer are not assessable income.
The tax treatment is based on a court’s decision (in a case that involved an airline flight incentive) that rewards received by an individual who provides services, or who has received the reward because of “business expenditure”, are not assessable. This was because the reward arises from the personal (that is, non-service/non-business) contractual relationship with the rewards program administrator.
The case in question dealt with the situation where an employee who had accumulated points as a result of travel on behalf of her employer converted those points into airline tickets for her parents (the points were not convertible to cash). The court held that the points related to her membership of the program, and there was no contractual relationship between the employer and the program administrator. Consequently the court held that it was irrelevant that the employer had paid for the cost of the original travel.
An exception to this tax treatment however would be where a person renders a service on the basis that there will be an entitlement to a flight reward — that is, a person enters into a service contract understanding they will receive rewards.
The Tax Office also accepts that with consumer loyalty programs such as Fly Buys, aimed primarily at domestic purchases by an employee, no amount is assessable income. It has however stated that it may take a different view of situations where the reward accumulated in a year exceeds 250,000 points as a result of a business relationship or business expenditure, and the arrangement has no commercial purpose other than to allow the recipient to receive reward points.
Can customer reward program benefits be taxed? Can customer reward program benefits be taxed? Can customer reward program benefits be taxed?