Tax on FF Points

[johnsmith]

Has anyone ever been audited by the tax office and had to pay tax on the FF points earned when travelling for business purposes. If these points are used for business then I guess there is no problem but if you use them for private use then would this be taxable? I only book flights for other people living overseas with my points, who would be taxed then if anyone?

 

[MetroAir]

No never!!!

What a horrible thought but an interesting question.

Make one reach for a BEX!!!

 

[Karen]

The tax office issued a practice statement this year (I'm an accountant) that they would be looking at people who accumulate more than 200,000 points a year, and it would only affect people who got them primarily from business.

I don't think that there would be a large number of people who accumulate more than that a year on a regular basis, and if you do, then it would probably be prudent to spread the love around between a few programs thus avoiding the gaze of the Commissioner altogether.

 

[johnsmith]

Good idea spreading the points around. Maybe I should use overseas credit card rewards and frequent flyer programs, the trouble is in the UK you only earn 1 point per pound, instead of 1 point per dollar. In Oz we are earning the equivalent of 1 point per 40 UK pence.

 

[Karen]

I forgot to add. I wouldn't be too worried about it though. they've already had a test case in teh Federal court which they lost a few years back. The fact that they're planning to "look at" people with large points earned just means that it isn't worth their while for the rats and mice, but the judge might look on it more favourably if a "substantial" tax free benefit is being obtained. Pfft - its not even enough for J class return to Europe!

 

[NM]

You might like to have a look at this ATO media release from a few years back. Appart from the new issue of points earned through business credit card spending (as mentioned above, and I believe this is only for credit/charge card points and not relevant to FF points earned from flights), I belive this remains unchanged from this media release.

http://www.ato.gov.au/corporate/content.asp?doc=/content/mr9739.htm

 

[thadocta]

Karen, just a quick query here.

Whilst I am currently employed by the NSW government, I am also involved with the taxi industry in a country area, being the owner of the taxi plates. Once you get outside of Sydney you have an entirely different taxi industry compared to capital city areas.

An example of this is that there are regular calls made to the taxi company asking for a case of grog to be delivered, or a packet of fags, or the local chinese or pizza places wanting something delivered. The situation is that the driver will pay for the goods, and collect the cash back at the other end, plus the delivery fee (of course).

Now what a LOT of drivers will do is pay for those goods on their credit cards. I know on the one shift per week that I do in the cab, I can easily put around $600 or so on the card, thereby getting me 600 QF FF points. Not an issue for me, but if I was to work 6 shifts per week it might become an issue.

Can you see any tax implications here?

Dave

 

[Karen]

As things stand ATM, there would be no tax implications. This is because it is a third party that is providing the benefit NOT the employer themselves. this is why the test case was lost. HOWEVER, the ATO definitely thinks that they should have a bite out of everything that people get for nix, and it is MY belief that they are going to have another run at it, but only concentrate on people accruing "excessive" benefits.

3600 points a week as per your example would still not be above their intended threshhold. Its is specifically credit card points they are looking at. Most small business owners (myself included) put all their business expenses through their cards and are then reimbursed by the business, whilst retaining the benefit for themselves and their family. The ATO thinks that this is therefore de Facto income, and should be assessed. Personally I don't think there is enough nexus between the employment relationship and the benefit being provided for it to ever be seen as taxable under our present legislation. It would need to be specifically enacted for this to be so. Which is not to say that the Commissioner wont go ahead and issue a TR which does not comply with the law as it is written (wouldn't be the first time), thus creating law as it suits himself.

As I said earlier - if you're that worried just spread the "love" around. Much more difficult to then be identified as a potential audit or test case. Months in the AAT is no fun, even for a public servant!

 

[oz_mark]

3600 points a week as per your example would still not be above their intended threshhold. Its is specifically credit card points they are looking at. Most small business owners (myself included) put all their business expenses through their cards and are then reimbursed by the business, whilst retaining the benefit for themselves and their family. The ATO thinks that this is therefore de Facto income, and should be assessed. Personally I don't think there is enough nexus between the employment relationship and the benefit being provided for it to ever be seen as taxable under our present legislation. It would need to be specifically enacted for this to be so. Which is not to say that the Commissioner wont go ahead and issue a TR which does not comply with the law as it is written (wouldn't be the first time), thus creating law as it suits himself.

As I said earlier - if you're that worried just spread the "love" around. Much more difficult to then be identified as a potential audit or test case. Months in the AAT is no fun, even for a public servant!

I would have thought that the ATO would have bigger fish to fry than this. Just how much does the ATO think it is losing? And if you put personal and business items on the credit card, won't the record keeping requirements become a bit ridiculous.

 

[johnsmith]

3600 points a week as per your example would still not be above their intended threshhold. Its is specifically credit card points they are looking at. Most small business owners (myself included) put all their business expenses through their cards and are then reimbursed by the business, whilst retaining the benefit for themselves and their family. The ATO thinks that this is therefore de Facto income, and should be assessed. Personally I don't think there is enough nexus between the employment relationship and the benefit being provided for it to ever be seen as taxable under our present legislation. It would need to be specifically enacted for this to be so. Which is not to say that the Commissioner wont go ahead and issue a TR which does not comply with the law as it is written (wouldn't be the first time), thus creating law as it suits himself.

As I said earlier - if you're that worried just spread the "love" around. Much more difficult to then be identified as a potential audit or test case. Months in the AAT is no fun, even for a public servant!

I would have thought that the ATO would have bigger fish to fry than this. Just how much does the ATO think it is losing? And if you put personal and business items on the credit card, won't the record keeping requirements become a bit ridiculous.

With the total value of all the Frequent Flyer points in the world being worth more than all the US currency on issue, I suspect that the ATO will definitely get a share some day. Credit Card companies pay Airlines millions of dollars every year for reward points and they will pay tax on their profits so we should not be taxed again. I could not begin to imagine how much Qantas earns from selling rewards points to Credit Card Companies but I bet its several million dollars every week. Maybe we should just give the government our points so they can fly around the world with their families on nice holidays, silly me they do that anyway with our taxes. With more and more people accumulating points from credit cards then transferring them to Qantas FF program, Does Qantas have to make more award seats available with the ever increasing amount of FF points they sell to card companies, eventually the value of the Qantas FF points on issue will outstrip the value of the airline. Maybe they have to make seats available as a percentage of the points in circulation, I would be interested to know.

 

[NM]

In the example kindly explained by Karen, the issue is not specifically FF points, nor is it related to Fringe Benefits Tax. It is to do with the potential to consider such benefits as income for the recipient. In that case it really does not matter if it is the result of someone else paying the bills or not. And with the ability to redeem quasi cash benefits, such as CC credits or gift vouchers for fixed amounts (ie a $100 Myer voucher), it could easily be assessed as income in the same way as bank interest is assessed as income. Not quite so simple for other types of redemptions.

Lets hope they do not decide to take this one up again. Initially they are only looking at large points/value accrual. But with bank interest we even need to declare as little as $1 as income. Perhaps any progress down this path by the ATO may result in the "cash" type rewards being removed since other rewards such as transfers to FF accounts are more difficult to identify a true cash value for income taxation purposes.

All my business travel expenses go through a Corporate CC which is in my name and I retain any reward points earned (and have to personally pay the annual rewards scheme membership fee - company pays annual card fee).

In the last two years I have earned about 70,000 points on that card. In the same time I have earned almost 200,000 points on my personal Amex Rewards Maximiser card, of which non is business/work related expenses. Maybe its time to transfer those points to my QF account now before it reaches 200,000 points, and also earn almost 200,000 entries in the competition to win one of 6 Lexi (I assume that is the plural of Lexus).