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Ruling

Subject: Assessable income

Question

Are the rewards you receive from your frequent flyer program assessable income?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 2012

The scheme commenced on:

1 July 2011

Relevant facts and circumstances

You have a frequent flyer account.

As a member you earn points for travel you undertake with the airline and its affiliated airlines.

Points can be redeemed for flights or flight upgrades with the airline and its affiliated airlines.

Points cannot be redeemed for cash or vouchers.

Members of the program can nominate family and friends to be in their redemption group. Redeemed awards can be used by the member or anyone in their redemption group.

Your employer requires you to travel for work. You have acquired frequent flyer points from travel paid for by your employer in relation to your work.

You have also acquired frequent flyer points as a result of private travel.

You signed up to the frequent flyer program personally and your employer was not aware that you had joined the program.

You have since advised your employer that you are a member of this program.

There is no arrangement in place with you employer in regards to the program. Your employer does not specifically use specific airlines to ensure you gain points through the program.

You have no relationship to your employer other than that as employee.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-1

Income Tax Assessment Act 1997 Section 15-2

Reasons for decision

Summary

The flight rewards you receive under your frequent flyer program are received as a result of your personal contract with the program provider and not in respect of your employment. Therefore, the rewards are not considered to be assessable income.

Detailed reasoning

Subsection 6-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that assessable income includes ordinary income and statutory income. Statutory income may include any allowances or benefits received in respect of any employment or services rendered (subsection
15-2(1) ITAA 1997).

Taxation Ruling TR 1999/6 sets out the tax implications of flight rewards received from consumer loyalty programs. A consumer loyalty program is not defined in the legislation; however TR 1999/6 sets out the following standard features:

· the customer is dealing with the supplier in a personal capacity, that is, in accordance with the normal arm's length commercial relationship that exists between consumers and suppliers

· membership is restricted to natural persons

· membership of the program is usually by application, which may require an application fee and/or annual fees

· points are received with each purchase of goods or services

· members and non-members pay the same amount for the goods or services purchased, and

· points are redeemable for goods or services.

Rewards received under these programs may consist of free flights, flight upgrades, free accommodation or car hire. The reward should only be taken by the program member or an immediate family member and should not be transferrable or redeemable for cash (paragraph 2 TR 1999/6).

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 of the reward and the reward provider, and the benefit is convertible directly or indirectly to money's worth, or

· the taxpayer is carrying on a business and the reward is considered a non-cash business benefit, or

· where the activities associated with obtaining the reward amount to a business or commercial activity, or

· there is an arrangement between the employer and the employee, where an entitlement to a reward will arise as a result of services rendered and the employee receives a reward, in substitution for income.

However where the rewards are received by an individual and they are not a result of any services provided or business activity, the rewards are not generally regarded as assessable income.

TR 1999/6 considers the decision in Payne v. FC of T (1996) 66 FCR 299 (Payne's Case). In Payne's case, the taxpayer joined the consumer loyalty program without her employer's knowledge. The reward points the taxpayer accrued from employer-paid travel (and some privately-paid travel) were used to acquire airline tickets in the name of her parents who travelled from England to visit her. The Commissioner assessed the taxpayer on the value of the airline tickets that accrued from employer-paid travel.

The Federal Court held that the taxpayer was not assessable in respect of the flight reward as she received the flight reward as a result of the personal contract she established with the airline on payment of the membership fee. The Federal Court decided if there was a benefit given, it was given as a result of the personal contract between the taxpayer and the consumer loyalty program provider, notwithstanding the benefit arose as a 'consequence' of the employment.

In your case, you are not carrying on a business and you are a member of a frequent flyer program. The frequent flyer program meets the definition of a consumer loyalty program provided in TR 1999/6. You receive points as a result of employer paid travel. The points and subsequent rewards are received as a result of the personal contract between you and the frequent flyer program provider. The rewards are not received in respect of your employment, although your employment may be the indirect or contributory cause of the receipt of the rewards.

Accordingly the rewards you receive as a result of your employer paid travel are not assessable income.

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