Edited version of private advice

Authorisation Number: 1052336000338

Date of advice: 26 November 2024

Ruling

Subject: GST - loyalty program

Question

If a member of the Rewards Program redeems Reward Points for goods or services supplied, is the redemption of Reward Points by the member part of the consideration for the supply of the goods or services when calculating the value of the supply under section 9-75 of the A New Tax System (Goods and Services Tax) Act 1999?

Answer

No.

This ruling applies for the following period:

1 July 20XX to 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The operation of the Loyalty Program

The Company operates a Customer Loyalty Program which includes a rewards program (Rewards Program).

To become a member of the Rewards Program, an individual must live in Australia, have an active online account, and at least one active eligible product or service. The individual must also join online through the Company's online account or download the Company's app and read and accept the relevant terms and conditions.

After becoming a member, the Rewards Program allows customers to earn and use points (Reward Points) when participating in various activities. Members obtain a unique Rewards customer number and can view their Rewards Points balance (if any) on the dashboard on the Company's app or in the Company's online account.

The Rewards Program currently operates through a basic earn/spend structure, where Reward Points are earned by taking part in Earning Activities (see further below). Members also receive access to partner offers, including discounts on products and subscriptions.

The Company intends to update the Rewards Program by expanding the options for redemption of Reward Points, to allow for them to be redeemed for, among other things, goods and/or services, either by redemption of points alone or redemption of points plus payments of money.

Reward Points may currently be earned through a number of activities (Earning Activities) such as:

• joining the program
• buying certain goods or services
• downloading the Company's app (prior to joining)
• converting from paper to electronic documents.

Earning Activities are not 'always on', and thus the available suite of Earning Activities varies from time to time.

The following are some proposed additional Earning Activities to earn Reward Points as part of the update to the Rewards Program:

• downloading the Company's apps (post joining)
• spending/increased reliance on the Company's goods or services
• currency rewards of using/buying from an adjacency/partner/venture
• obtaining a quote from the Company
• making a referral
• social shares (word of mouth marketing links to referrals)
• data sharing (to capture missing data)
• general and regular digital engagement (e.g., performing tasks to obtain rewards and regular access to a digital site)
• reaching milestones (e.g., membership anniversary).

The Reward Points that can be earned per Earning Activity will be specified in the related Earning Activity Terms and Conditions. Once earned, the applicable Reward Points will appear in the customer's account at the time specified in the related Earning Activity Terms and Conditions.

Use

A customer who has earned Reward Points has a contractual right to be provided with a benefit under the Rewards Program. A customer exercises that right by redeeming Reward Points. However, Reward Points do not give the right to any specific rewards until such time as the points are redeemed.

One Reward Point may be redeemed at a rate of one Australian dollar for the member's chosen benefit.

Once the Company has updated the Rewards Program, Reward Points may be redeemed to provide a discount on eligible products and services offered by the Company as well as for gift cards purchased and used with third party suppliers.

The Company intends for Reward Points to be able to be redeemed for any of their eligible goods or services.

Members will be able to use their Reward Points to reduce the cost of the goods or services. The cost of the good or service would be calculated first without taking into account whether a customer will redeem Reward Points to reduce the amount of cash they have to pay. Where a member elects to redeem Reward Points to reduce the cost of the good or service payable, the Company would only charge the member the discounted price.

There is no cash-out function and Reward Points cannot be exchanged for currency of any kind. This extends to refund scenarios - for example, if a refund occurs in relation to any product acquired by the redemption of Reward Points, then the same amount of Reward Points used will be refunded with Reward Points (i.e. there is no ability to obtain a cash refund).

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

A New Tax System (Goods and Services Tax) Act 1999 section 9-10

A New Tax System (Goods and Services Tax) Act 1999 section 9-15

A New Tax System (Goods and Services Tax) Act 1999 section 9-17

A New Tax System (Goods and Services Tax) Act 1999 section 9-40

A New Tax System (Goods and Services Tax) Act 1999 section 9-75

A New Tax System (Goods and Services Tax) Act 1999 section 195-1

Reasons for decision

In this reasoning, please note:

•         unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

•         all legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act

•         all reference materials, published by the Australian Taxation Office (ATO), that are referred to are available on the ATO's website ato.gov.au.

Question 1

GST is payable on a taxable supply under section 9-40. The requirements for what constitutes a taxable supply are set out in section 9-5 and include, among other things, that a supply is made for consideration. Section 9-70 provides that the amount of GST on a taxable supply is 10% of the value of the taxable supply. The value of taxable supply is defined in 9-75. Subsection 9-75(1) provides that the value of a taxable supply is the 'price' multiplied by 10/11. 'Price' is defined in subsection 9-75(1) to be sum of:

• so far as the consideration for the supply is consideration expressed as an amount of money - the amount (without any discount for the amount of GST (if any) payable on the supply); and
• so far as the consideration is not expressed as an amount of money - the GST inclusive market value of that consideration.

The value of the taxable supply for the purposes of section 9-75, therefore, depends upon the consideration that is provided for the supply.

Consideration is defined in the dictionary to the GST Act in section 195-1 - namely, 'consideration, for a supply or acquisition, means any consideration, within the meaning of sections 9-15 and 9-17, in connection with the supply or acquisition.'

Subsection 9-15(1) provides that 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.

Certain payments and other things that are not consideration are set out in section 9-17. Relevantly on these facts, subsection 9-17(1) provides that if a right or option is granted then:

• the consideration for the supply of the thing 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; or
• if there is no such additional consideration - there is no consideration for the supply.

The key question on these facts is whether the redemption of the Reward Points by Program members forms part of the consideration provided for the Company's supply of goods or services, and therefore needs to be included in the 'price' calculation under section 9-75 (if the supply is a taxable supply).

The arrangement described in the facts concerns a loyalty program. The ATO's position on the GST consequences for loyalty programs is explained in Goods and Services Tax Ruling GSTR 2012/1 Goods and services tax: loyalty programs (GSTR 2012/1). GSTR 2012/1 applies to a loyalty program structured in the manner described in paragraph 7:

7. This Ruling applies to arrangements whereby a loyalty program is established by the loyalty program operator, and governed by an arrangement between the loyalty program operator and each member, that have all of the following features:

•         the loyalty program operator provides a member with loyalty points as a consequence of the member purchasing eligible goods or services or using a credit card to make such a purchase;

•         the price paid by a member for making eligible purchases is the same as for a non member (that is they do not pay anything extra for the loyalty points);

•         the loyalty points cannot be transferred for money;

•         the loyalty points cannot be redeemed for money;

•         to the extent that points may notionally have a value for program members, the value of points earned in making eligible purchases is low compared to the price of the goods or services themselves (that is the value would be less than 10% of that of the goods or services);

•         there is a record keeping mechanism in place that allows the loyalty program operator, member or both, to track how many loyalty points have accrued; and

•         the points may be redeemed at some time for a reward, being goods or services or a right to receive goods or services. The actual reward depends on the number of points accrued and redeemed by the member. Accordingly, the greater the number of points redeemed, the more valuable the reward to the member is likely to be.

•         While not all of the elements of paragraph 7 are applicable to the Company's Rewards Program, the parts of the ruling that discuss the GST consequences of elements relevant to the Rewards Program will have application.

Paragraphs 23-24 and 100-103 of GSTR 2012/1 explain the GST consequences of redeeming loyalty points for a reward:

23. Where a member obtains a reward, a supply is made to the member. Depending on the structure of the loyalty program, that supply may be made by an operator or by a redemption partner.

24. The redemption of points by a member is not consideration for the supply of a reward to the member. Accordingly, the supply of the reward can only be a taxable supply by the operator or redemption partner to the member where some consideration is provided, for example under a points plus pay arrangement.

...

Is it a taxable supply?

100. Whether the supply of the reward to the member is a taxable supply made to them depends on whether there is any consideration for the supply. If the member does not pay any amount to obtain the reward (that is they redeem sufficient points to obtain the reward), they do not provide any monetary consideration for the supply of the reward.

101. The redemption of points is not consideration for the supply of rewards to the member. The redemption of points is merely the exercise of a contractual right and not the provision of consideration. The act of redemption does not have any inherent value or independent identity such that they are compensation for the supply of the rewards. ...

102. When the member redeems points in exchange for a reward, they are exercising their right to the supply of the reward. In accordance with paragraph 9-17(1)(a), the consideration for the supply of the thing (the reward) is limited to any additional consideration provided either for the supply or in connection with the exercise of the right. Where the member redeems their points for the reward without providing consideration (that is, it is not a points plus pay situation), the supply of the reward is not a supply to the member for consideration.

103. Accordingly, the supply of the reward to the member is only a taxable supply where consideration is provided (for example, an amount paid by the member) and the other elements of section 9-5 are met (including that the supply is not GST free or input taxed).

Under the Company's Rewards Program, the Company is the operator and its customers are the Program members. Members can redeem Reward Points earned under the Program for a 'reward' (such as a gift card). These Reward Points will be redeemable in the future for 'reward' amounting to a reduction in the price of the good or service payable. We consider that where the member is using their Reward Points to obtain money off of the good or service payable, the 'reward' they are receiving is the discount on the good or service.

In applying subsection 9-17(1) and the principles from GSTR 2012/1 extracted above, we agree with the Company's submission in its private ruling application that where Reward Points are redeemed in connection with the supply of a good or service, the redemption of those Reward Points is not consideration (additional or otherwise) for the supply of the good or service. The redemption of points is merely the exercise of a contractual right to receive a 'reward' (in this case a discount on the good or service), consistent with subsection 9-17(1), and not the provision of consideration within the meaning of section 9-15.

Consequently, for the purposes of section 9-75 the value of a taxable supply of a good or service made by the Company will be limited to any additional consideration provided by the member for the supply of the good or service (i.e. the payment of money on the balance owing after redeeming the Reward Points). GST will be payable under section 9-40 only to the extent of this additional consideration provided.