Edited version of private advice

Authorisation Number: 1052349881154

Date of advice: 21 January 2025

Ruling

Subject: Goods and services tax and loyalty programs

Question 1

Is the consideration for the goods and services supplied by the Participating Retailer to a Member using a 'money off' reward limited to the discounted price?

Answer 1

Yes.

When a Member is using their Loyalty points to obtain money off, whether by using Loyalty dollars loaded on their Loyalty card or swiping their Loyalty card for $X off at the POS, the reward they are getting is a discount for the goods or services being purchased.

The consideration that the Participating Retailer receives from the Member is limited to the cash payment that is received from the Member. This circumstance is similar to a customer using a discount voucher, an X cents-a-litre off coupon or a 'points plus pay' promotion. The act of using such a discount is not itself consideration under section 9-15 A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Question 2

Does the Participating Retailer make a taxable supply to Loyalty Program Operator for the Redemption Payment?

Answer 2

Yes.

The Participating Retailer and Loyalty Program Operator are parties to the Participation Agreement under which they have agreed to make several supplies to each other as part of the Loyalty Program.

One such supply is the Participating Retailer's agreement to accept 'money off' rewards by only charging Members the discounted price. In consideration of having done so, the Loyalty Program Operator will pay the Participating Retailer a Redemption Payment.

As a result of the contractual agreement and the actions of the parties, there is both, a supply and consideration in the Participating Retailer accepting the 'money off' reward. Such supply will be a taxable supply as the requirements of a taxable supply in section 9-5 of the GST Act are met.

Question 3

If the answer to the above question 2 is 'yes', is the character of the supply by the Participating Retailer to Loyalty Program Operator the same as the character of the supply to the Member.

Answer 3

Yes.

It is considered that the character of the supply by the Participating Retailer to Loyalty Program Operator is the same as the character of the supply to the Member, see paragraph of the Goods and Services Tax Ruling GSTR 2012/1 Goods and Services Tax: loyalty programs.

The characterisation that the supply to Loyalty Program Operator is the same as the supply to the member is consistent with the decision in Commissioner of Taxation v. Secretary to the Department of Transport (Vic) [2010] FCAFC 84. In that case, the single action of transporting an eligible taxi passenger was taken to be a supply to both, the passenger (who paid a discounted fare) and the Department (who paid an amount equal to the remaining fare). Both supplies had the same character of transport services.

The scheme commences on:

The date of issue of the private ruling.

Relevant facts and circumstances

You are the representative member of a GST Group.

You are a Participating Retailer to the Loyalty Program.

Loyalty Program operation

Customers who sign up to become Members of the Loyalty Program agree to Membership Terms and Conditions by completing a membership application form.

After becoming a Member, customers can earn points on eligible purchases from Participating Retailers and other business partners for every dollar they spend and through special promotions. The points earned are credited to the individual Member's account.

Points credited to a Member's account do not have any monetary value and do not provide the right to any rewards until redeemed.

Participating Retailers and other business partners are required to pay the Loyalty Program Operator for the points earned by Members on eligible purchases. The Loyalty Program Operator uses these funds to purchase the rewards that Members can redeem with their points.

There are many different types of rewards available to Members, including goods or services from various providers using only points or a combination of points and money. Members can redeem their points for gift cards or donate to charity. This private ruling does not cover these types of rewards offered through the Loyalty Program.

The Loyalty Program essentially has all the features set at paragraph 7 of the GSTR 2012/1.

This ruling specifically addresses the GST treatment of transactions where Members use their Loyalty points to receive discounts, or 'money off' as described in the marketing materials, on their purchases at Participating Retailers.

Point of sale discounts

At stores, Members can scan their Loyalty card at the POS. If they have sufficient Loyalty points, they can reduce their payment (purchase price) by redeeming their points.

Eligible Members who scan their Loyalty card at the POS to accrue points will be prompted when their purchase exceeds $X and they have sufficient points available to redeem for a reward. They are then asked if they wish to take $X off their shop or save their points for later use.

When an eligible Member has sufficient points, they will also have the option to redeem a specified amount or the maximum amount available. The Member is required to make a selection via the touchscreen at the POS or by confirming with the cashier.

For example, if an eligible Member has scanned $XX of shopping through the POS and elects to redeem $XX worth of Loyalty points, the Participating Retailer must accept the redeemed amount and charge the Member the discounted price. In this example, the eligible Member would pay $XX for their shopping.

When a Member has sufficient points and the total value of their shop is more than the required minimum amount, it will be possible to pay for a shop entirely with a POS discount.

Loyalty dollars

There is an alternative method for redemption of Loyalty points, called Loyalty dollars. Under this method, Members must log into their Loyalty account or app prior to visiting a Participating Retailer to convert points into L$, which can then be used to obtain a discount in-store. As you will not be using the L$ method, the ruling does not consider for this redemption method.

Redemption Payments to Participating Retailers

Participating Retailers have entered into Participation Agreements with the Loyalty Program Operator, under which they agree to accept the 'money off' reward and only charge the Member the discounted price.

In turn, the Loyalty Program Operator agrees that when points are redeemed by Members for a 'money off' reward at a Participating Retailer, the Loyalty Program Operator will pay the Participating Retailer an amount (a Redemption Payment) to compensate them for accepting the POS discount.

The exact amount of the Redemption Payment from the Loyalty Program Operator for any Participating Retailer will depend upon the agreement negotiated between the Participating Retailer and Loyalty Program Operator.

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 9-15

A New Tax System (Goods and Services Tax) Act 1999 section 100-5

A New Tax System (Goods and Services Tax) Act 1999 section 100-25