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All of the major banks have recently announced cuts to the number of points earned for credit card spending. But there could be even more pain on the way for credit card holders.
Business owners and employees could soon be taxed when redeeming frequent flyer points that were earned via business expenditure. Currently, business owners can earn points on their credit card spend and redeem these points as they wish. But it has been reported that the Australian Tax Office (ATO) is considering whether such rewards should be subject to the Fringe Benefits Tax (FBT).
While no decision has been made, any changes could mean that Australians start having to pay tax when redeeming their hard-earned points for a holiday.
Currently, it is generally accepted that the ATO will not scrutinise an individual’s FBT obligations if they earn less than 250,000 points per year from business expenses, and the points are earned through genuine business activity.
Most of our members reject the proposal. They do not believe that frequent flyer points should count as a fringe benefit as they do not have any value unless redeemed. In fact, most frequent flyer programs specifically state in their terms & conditions that points have no monetary value. Moreover, it would be very difficult to calculate the value of a point once redeemed, as different redemptions can value points at wildly different amounts.
Some members refer to the precedent set by the Payne ruling in 1996, which found that Ms Payne’s reward flights could not be taxed.
Either way, with most banks slashing the number of points earned for credit card payments in the coming months, credit card holders are in for a rough ride.
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