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Edited version of private ruling
Authorisation Number: 1011562357625
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Ruling
Subject: Loyalty reward points program
Question and Answer
Are the reward points earned under a loyalty reward points program assessable income?
Yes
This ruling applies for the following periods:
Year ended 30 June 2011
Year ended 30 June 2012
Year ended 30 June 2013
The scheme commences on:
1 July 2010
Relevant facts and circumstances
The company is engaged in a management service.
The company is considering entering into a loyalty points program in which points will be given each month.
The company will engage a Utility Service Provider to provide a connection service for phone and electricity to tenants.
The loyalty points would be obtained from the Utility Service Provider by the recommendation and connection of utility services on behalf of tenants.
Once the company receives a certain number of points, the director can redeem the points for gifts.
Relevant legislative provisions
Income Tax Assessment Act 1936 Section 21A.
Income Tax Assessment Act 1997 Section 6-5.
Income Tax Assessment Act 1997 Section 6-10.
Reasons for decision
Non-cash business benefits
Section 21 A of the Income Tax Assessment Act 1936 (ITAA 1936) includes the arms length value of non-cash business benefits in the assessable income of a taxpayer. Non-cash business benefits are defined as property or services provided in respect of a business relationship. Non-cash business benefits that cannot be converted to cash will be treated as if they were convertible to cash.
Assessability of rewards from consumer loyalty programs
Rewards received under consumer loyalty programs will be assessable where they are received as part of an income earning activity and:
- there is a business relationship between the recipient and the reward provider and the benefit is convertible to moneys worth, or
- the taxpayer is carrying on a business and section 21A of the ITAA 1936 includes the value of the benefit in their assessable income.
The reward will also be assessable under 21A of the ITAA 1936 where the activities associated with obtaining the reward amount to a business or commercial activity.
Your case
In your case:
The company is engaged in activities which constitute a business.
The company will receive reward points from the utility service provider when it engages the utility service provider to connect services to the properties on behalf of the tenants.
The gaining of reward points is directly related to the business.
The activities associated with obtaining the reward amount to a business or commercial activity. Thus the points will be assessable income of the company.
Further Information
We have enclosed for your reference some information on loyalty programs - Taxation Ruling TR 1999/6, Taxation Determination TD 1999/34 and PS LA 2004/4 (GA).
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