Rewards received under consumer loyalty programs

Law Administration Practice Statement PS LA 2004/4 (GA) discusses the circumstances in which rewards received under consumer loyalty programs may be subject to income tax or fringe benefits tax.

The courts have held and the ATO accepts that in most circumstances the rewards received under a consumer loyalty program are not taxable. The practice statement confirms this position. Importantly the practice statement confirms the position that a consumer loyalty reward that results from private expenditure is not assessable.

The practice statement identifies those circumstances where tax officers need to refer a taxpayer's case to a senior technical leader for further consideration of whether the rewards received are taxable. A taxpayer's circumstances will receive further consideration where:

• the arrangement is so contrived and artificial that it has no commercial purpose other than to allow the recipient to receive the rewards to which they become entitled, and/or
   
• the nature of the arrangements suggest that the rewards are being received in substitution for income which would otherwise be earned, and/or
   
• the points accumulated from a business relationship or business expenditure exceed 250,000 points per annum.

Most taxpayers do not need to change their current behaviour. Nor will most taxpayers need to retain any records of how the points that they receive under a consumer loyalty program were earned.

The examples set out in PS LA 2004/4 (GA) are a guide to when a taxpayer's rewards from a consumer loyalty program will be referred to a senior technical leader for further consideration as to whether the rewards are taxable.

What to read/do next

• Law Administration Practice Statement PS LA 2004/4 (GA): Income tax and fringe benefits tax - rewards received under consumer loyalty programs.

If you need help applying this information to your own situation, please phone 13 28 61.

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