ATO Interpretative Decision

ATO ID 2004/847

Income tax

Deductions: work related travel - privately accrued consumer loyalty points
FOI status: may be released
Status of this decision: Decision Current
CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.

Issue

Is the taxpayer entitled to the value of an airline ticket as a work related deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997), where the taxpayer acquires the airline ticket by redeeming privately accrued consumer loyalty points?

Decision

No. The taxpayer is not entitled to the value of an airline ticket as a work related deduction under section 8-1 of the ITAA 1997, where the taxpayer acquires the airline ticket by redeeming privately accrued consumer loyalty points.

Facts

The taxpayer is an employee and uses their personal consumer loyalty program points to acquire an airline ticket for work related purposes.

The consumer loyalty points were accrued through the taxpayer's private expenditure.

The loyalty points redeemed to acquire the airline ticket were subtracted from the taxpayer's accumulated reward points.

It is a condition of the consumer loyalty program that any accumulated points and the rights they confer cannot be sold, transferred, assigned or otherwise dealt with.

Reasons for Decision

Section 8-1 of the ITAA 1997 allows a deduction for all losses or outgoings to the extent that they are incurred in gaining or producing assessable income or are necessarily incurred in carrying on a business for that purpose. However where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income they will not be deductible. In addition, losses or outgoings will not be deductible under section 8-1 of the ITAA 1997 where another provision prevents it.

Subsection 21(1) of the Income Tax Assessment Act 1936 (ITAA 1936) provides that:

where, upon any transaction, any consideration is paid or given otherwise than in cash, the money value of that consideration shall, for the purposes of this Act, be deemed to have been paid or given.

The Federal Court in Payne v. FC of T (1996) 66 FCR 299; 96 ATC 4407; (1996) 32 ATR 516 (Payne's Case), held that a flight reward received by an employee taxpayer was not assessable on the basis of the reasoning in FC of T v. Cooke and Sherden 80 ATC 4140 (1980) 10 ATR 696, because the flight reward was not 'money' or 'money's worth' and it was not convertible into cash.

In this case, the taxpayer acquired an airline ticket by voluntarily redeeming points under their consumer loyalty program. The redemption of the taxpayer's loyalty points is a 'transaction' according to the wide meaning given to the word under case law. As the consideration for the airline ticket was not paid or given in cash, the value of the consideration attributable to the airline ticket is determined according to subsection 21(1) of the ITAA 1936.

Under the taxpayer's consumer loyalty program, the loyalty points cannot be transferred or assigned. For the purposes of subsection 21(1) of the ITAA 1936, the money value of the consideration given by the taxpayer is $nil because the consumer loyalty points are not convertible into cash (Payne's Case).

To be eligible for a deduction under section 8-1 of the ITAA 1997 a taxpayer must incur a loss or outgoing. Here, the taxpayer has not incurred a loss or outgoing of any pecuniary value because the consideration deemed to be paid or given for the transaction is nil. Therefore, the taxpayer will not be entitled to a deduction under section 8-1 of the ITAA 1997 for the airline ticket acquired through the consumer loyalty program.

Date of decision:  6 August 2004

Year of income:  Year ended 30 June 2003

Legislative References:
Income Tax Assessment Act 1997
   section 8-1

Income Tax Assessment Act 1936
   subsection 21(1)

Case References:
Payne v. FC of T
   (1996) 66 FCR 299
   (1996) 32 ATR 516
   96 ATC 4407

FC of T v. Cooke and Sherden
   80 ATC 4140
   (1980) 10 ATR 696

Keywords
Deductions & expenses
Non cash considerations
Rewards programs

Siebel/TDMS Reference Number:  4128596; 1-AXH44YS

Business Line:  Small Business/Individual Taxpayers

Date of publication:  29 October 2004
Date reviewed:  31 October 2017

ISSN: 1445-2782


Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).