Edited version of private ruling

Authorisation Number: 1011476446253

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Ruling

Subject: GST and loyalty program

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it.

Question

Are you liable to remit Goods and Services Tax (GST) under Division 9 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) in relation to supplies made under a customer rewards system?

Answer

No.

Relevant facts and circumstances

You registered for GST after 1 July 2000.

You operate a chain of businesses.

You offer your customers a reward system under which you give them a credit of 10% of their purchases.

The credits accumulate in the form of a cash account in the customer's name and can be redeemed for purchases in any of your cafes at any time.

You charge GST on all purchases at the point of sale where the purchases are made for cash.

You want to know whether GST is payable in relation to supplies made under the rewards system: ie where an item is supplied without any cash changing hands due to the customer having accumulated a sufficient credit balance in their reward account as a result of previous supplies on which GST was charged.

Reasons for decision

Under Subdivision 9 of the GST Act, you must pay the GST payable on any taxable supply that you make.

A taxable supply is defined as follows:

You make a taxable supply if

· you make the taxable supply for consideration

· the supply is made in the course or furtherance of an enterprise that you carry on in Australia

· the supply is connected with Australia, and

· you are registered or required to be registered.

However, the supply is not a taxable supply to the extent that it is GST-free or input-taxed.'

Under Subsection 9-15(1) of the GST Act, consideration includes:

· any payment or any act or forbearance in connection with a supply of anything; and

· any payment, or any act or forbearance, in response to or for the inducement of a supply of anything.'

However, Subsection 9-15(3) of the GST Act states that:

· if a right or option or option to acquire a thing is granted , then:

· the consideration for the supply on the exercise of the right or option is limited to any additional consideration provided either for the supply or in connection with the exercise of the right or option….

The question of whether the sales you make to customers at the time they redeem their reward credits are taxable supplies depends on whether the reward system amounts to the granting of a right or option to the customer. Without subsection 9-15(3)(a) of the GST Act, the sales would satisfy the requirements of subdivision 9 because we consider that the redemption of the cash credits would amount to consideration for the sale.

The crediting of a customer's reward account with 10% of the cost of a final 'free' sale amounts to the granting of a right or option to acquire that 'free' sale when sufficient reward points are accumulated, in other words when the 'free' supply is paid for.

This Ruling is consistent with the Commissioner's announcement of 1 March 2000 that "there will be no GST applied to the goods or services supplied to members under consumer loyalty programs".

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Subdivision 9.