Tax and GST Considerations for Earning Points on Business Spend

In general, frequent flyer points earned through business spending is not taxable to the individual member. The Australian Taxation Office’s (ATO) treatment of consumer loyalty programs focuses on the member’s relationship with the program. This can distinguish the rewards from employment or business income. These rewards are generally not assessable income or subject to Fringe Benefits Tax. As covered by the relevant ATO guidance. Fringe Benefits Tax (FBT) is generally imposed on certain benefits provided by employers to employees. The general treatment has documented exceptions.

The tax outcome depends on how the points are earned, held and used. Businesses that accumulate large points balances may need to reconsider those expectations. This article describes the relevant published ATO rulings and provides general information, not tax advice. Confirm your own position with a registered tax agent or the ATO before acting. Here is what the ruling says and which exceptions can change the outcome. We also cover the GST treatment of points-earning spend and the practical considerations for businesses.

What TR 1999/6 says about points and rewards

The governing document is Taxation Ruling TR 1999/6. It sets out the Commissioner’s view on flight rewards received under frequent flyer and similar consumer loyalty programs, including credit card programs. Its foundation is the Federal Court’s 1996 decision in Payne v FC of T. A taxpayer who earned points from employer-paid travel and redeemed them for family flights was held not to be assessable. This was because the reward flowed from her personal contract with the airline program rather than from her employment. The ruling applies the principle that flight rewards are generally not assessable income and not subject to fringe benefits tax. This is because the member’s relationship with the program is a personal contractual one.

The principle covers the everyday cases that worry small operators. An employee who keeps the points from employer-paid flights, a sole trader whose business card feeds a personal frequent flyer account, and a business owner redeeming points from business expenditure for a private holiday all sit, in the ordinary run of things, inside the general position. The points are a marketing benefit from the program, not a payment from the business, and the tax system leaves them alone.

The exceptions that change the answer

The ruling and its 2004 addendum carve out the situations in which the general position fails. Each involves the reward connecting more directly to employment or business than to membership alone.

• Warning: the exceptions are fact-driven. A business generating substantial points from its expenditure should have its own arrangements reviewed by a registered tax agent
• Fringe benefits tax can apply where the employer and employee have a family relationship and the flight reward is received in connection with the employment
• Fringe benefits tax can also apply where a reward is provided to an employee or their associate under an arrangement that results from business expenditure
• A reward is assessable where a person renders a service on the basis that an entitlement to a flight reward will arise. Meaning the points are effectively part of the price. TR 1999/6 applies the same logic, where obtaining rewards amounts in itself to a business activity
• Under PS LA 2004/4 (GA), a reward outside the flight context can be assessed as ordinary income where it arises from a business relationship and is convertible to money or money’s worth

The ATO’s practice statement PS LA 2004/4 (GA) adds the administrative layer. It sets out the factors that flag a case for review by a senior technical leader. This includes arrangements contrived to generate rewards, rewards that substitute for income that would otherwise be earned, or points accumulated at more than 250,000 a year from business expenditure, the one numeric line the ATO publishes. Qantas itself points members in the same direction. It recommends on its Qantas Business Rewards pages that businesses consult their accountant or tax adviser about possible tax implications. This includes the fringe benefits tax, and the program operator’s recommendation is a fair summary of where the line sits. Routine cases are settled, structured or large-scale cases deserve advice.

The GST position on points-earning business spend

The GST question splits into spending and points. The clean answer is that the points do not change the spending. A GST-registered business claims input tax credits on its business purchases under the ordinary rules. Based on the GST included in the price and the acquisition’s creditable purpose. The fact that a purchase also earned points on a card is irrelevant to the credit. A position GSTR 2012/1 confirms that none of the member’s payment is apportioned to the points. Nothing about running expenditure through a rewards card adds to or subtracts from the business activity statement treatment of the underlying transactions.

The points themselves have no GST consequences for the member when they accrue. This is because the member is not making a supply by receiving a marketing reward. The same ruling treats a redemption as something other than consideration for a fresh supply. Complexity arises at the edges, such as when points are redeemed for goods or for business travel. The entity wants to characterise the redemption in its books.

Those edge treatments depend on structure and facts, which is registered tax agent territory rather than a rule of thumb. The safe general statement is the two-part one above. Claim the credits on the spending as normal. Treat the points as tax-silent until an exception or a redemption question puts them on the table. Fees paid to earn points, such as card surcharges or payment platform charges on business spending, are a separate deduction and input credit question that follows the underlying expense and sits outside this article. So confirm their treatment against ATO guidance.

The practical lines businesses draw

Well-advised businesses tend to convert the rulings into simple internal rules.

• Points from business card spending flowing to the owner’s personal frequent flyer account is the standard pattern. It sits inside the general position for most operators
• Any arrangement that looks like remunerating an employee in points gets a professional review before it starts
• Any understanding with a supplier that prices a reward into the deal gets the same review. Since priced-in rewards are where the exceptions live

Businesses running programs such as Qantas Business Rewards (QBR) maintain precise transfer records. This is because the flows are visible, and the accountant will want them at year-end. QBR is where points pool to the business and transfer onward to individuals.

Scale is the other line. A modest flow of points from ordinary expenditure attracts no attention. A business accruing more than 250,000 points a year from its spending sits squarely within the fact pattern for which the practice statement exists. The cost of an annual conversation with a tax agent is trivial compared to the value of the points involved. The cards that generate the balances are compared in the Platinum Business guide and its stablemates. The tax hygiene travels with whichever card wins.

Frequently asked questions

This article is general information and not tax advice. Confirm how the rules apply to your circumstances with a registered tax agent or the ATO before acting.

Fees, rates and figures quoted are correct at the time of publication and should be verified directly with each provider before acting on them.