Edited version of your written advice

Ruling

Subject: Fringe benefits tax

Question 1

Will a fringe benefit, as defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA), arise when employees accrue points in the employer's loyalty program in connection with goods or services purchased from the employer?

Answer

No.

Question 2

Will a fringe benefit, as defined in section 136(1) of the FBTAA, arise when employees receive rewards from points accumulated from the purchase of goods or services?

Answer

No.

This ruling applies for the following periods:

Year ending 31 March 20XX

The scheme commences on:

1 April 20XX

Relevant facts and circumstances

Employees are able to join the employer's loyalty program which is free to join and is open to the public.

Members of the program earn points when they make a purchase.

The points earned can be redeemed for goods or services that are offered through the program. Points cannot be transferred and have no cash value, and cannot be purchased or redeemed for money.

Employees can purchase services provided by the employer at a discount.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Reasons for decision

Question 1

Will a fringe benefit, as defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA), arise when employees accrue points in the employer's loyalty program in connection with goods or services purchased from the employer?

The definition of 'fringe benefit' in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) applies to a 'benefit' that is provided to an employee in respect of their employment. The benefit may be provided by the employer, an associate of the employer or under an arrangement with a third party.

Paragraph 3 of Taxation Ruling TR 1999/6 (TR 1999/6) sets out the definition of a consumer loyalty program. It states that a consumer loyalty program is:

…a marketing tool operated by a supplier of goods or services (including credit card providers), or a group of such suppliers, to encourage customers to be loyal to the supplier(s). The standard features of these programs are:

(a) 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;

(b) membership is restricted to natural persons;

(c) membership of the program is usually by application, which may require an application fee and/or annual fees;

(d) points are received with each purchase of goods or services;

(e) members and non-members pay the same amount for the goods or services purchased; and

(f) points are redeemable for goods or services.

The employer's loyalty program aligns with these factors, therefore is considered to be a consumer loyalty program for the purposes of the ruling.

Paragraph 23 of PS LA 2004/4 (GA) states that, in accordance with TR 1999/6, it is the receipt of the reward which is the taxing point, and the value of that reward may be subject to tax. The receipt of points accrued under a customer loyalty program would not be a taxing point.

As the employer's loyalty program is considered to be a customer loyalty program according to the factors of TR 1999/6, points accrued by employees under that program do not have fringe benefits tax implications.

Question 2

Will a fringe benefit, as defined in section 136(1) of the FBTAA, arise when employees receive rewards from points accumulated from the purchase of goods or services?

TR 1999/6 sets out the Commissioner's view on the taxation of rewards from consumer loyalty programs.

Whether fringe benefits arise upon an employee's receipt of rewards depends on whether the rewards were provided to an employee in respect of their employment.

The phrase 'in respect of', in relation to the employment of an employee, is defined in subsection 136(1) of the FBTAA to include 'by reason of, by virtue of, or for or in relation directly or indirectly to, that employment'.

In J & G Knowles & Associates Pty Ltd v. Federal Commissioner of Taxation 2000 ATC 4151; (2000) 44 ATR 22; [2000] FCA 196; (2000) 96 FCR 402 the Federal Court considered the meaning of 'in respect of employment' in the fringe benefits tax legislation. The Court noted that what has to be established in determining if a benefit is 'in respect of employment' is whether there is a sufficient or material, rather than a causal, connection or relationship between the benefit and the employment.

Therefore fringe benefits will not arise when employees receive rewards from Points accumulated from the purchase of goods or services.