ATO warns business owner over loyalty points from cards

[drron]

My,my.A banker taking the moral high ground.Now I have seen everything.

 

[opusman]

Suggest you all stop feeding the RBA troll.

 

[ermen]

Go for it. I stand by the fact that, in my opinion based on my 25 years in banking you have committed a fraudulent act

Trying to obfuscate now? A fact of opinion? Wow.

If you do take me on, it may be a good idea to stop using emoticons and LOL in your communications.

And why? Does using lol or detract from the merits of a case.

Im not seeing any takers for your case. This may have something to do with your stated location (Hong Kong)

And you can see my PM inbox! Maybe you haven't worked with lawyers in your 25 yrs of banking. Here's what I see - they will work for a fee.

Im counting 2 supporters so far and zero lawyers.

I'm counting zero supporters and zero lawyers for you. Shock horror. Lol... :idea::idea::idea:

 

[ermen]

Suggest you all stop feeding the RBA troll.

I wouldn't feed trolls at all.

But the shocking thing is this person is not a troll.

S(he) seems to genuinely hold these misguided beliefs... makes sweeping and wanton accusations against the facts.

S(he) is not logically consistent in their arguments, exhibits very low understanding of legal principles and doesn't base their arguments on fact.

And the scarier thing is, s(he) seems to allude that they work for our government. Now, if we do have these type of bureaucrats (and potentially in the RBA too), I think we have problems.

 

[Isochronous]

Agreed, however that is a bona fide payment request.

The pre pay example here is far from bona fide. The express intention is to extract points for a non required transaction and receive a refund through another channel.

That's not fraud though. Whether the OP gets refunded to bank or not, the CC issuer gets their cut of the transaction fee either way. That may well contravene the CC T&Cs but breach of contract and fraud are two very different concepts.

 

[Isochronous]

Are you suggesting that points from business expenses should be taxed because you cant push tens or hundreds of thousands of dollars a year through a credit card ? I would think you have the same opportunity as the next person to start any business, build the business and push expenses through a credit card to obtain points. I am just asking if your statement is based from that position ?



Wondering about this part of your comment ( my bold ). Genuine question here... as you have promoted FBT facts and seem to know. Does the FBT Act currently classify points earnt from business expenses through cards and redeemed for personal items as something that is definitely subject to FBT ? Are there examples of business actually declaring these values and paying FBT ?

Well said - just another jealous mediocrity who, because he can't have something, wants to abuse the government's monopoly on violence to ensure nobody else has it either. Juvenile socialism at its worst.

 

[straitman]

[MOD HAT]
If you want the thread to remain open then stop the name calling and cheap shots at individuals and get back to the actual topic.[/MOD HAT]

 

[theblank]

Are you suggesting that points from business expenses should be taxed because you cant push tens or hundreds of thousands of dollars a year through a credit card ? I would think you have the same opportunity as the next person to start any business, build the business and push expenses through a credit card to obtain points. I am just asking if your statement is based from that position ?

of course not. Working hard and succeeding has nothing to do with whether Reward points should be taxed or not, nor does it have anything to do with being in business or not.

IMO, Reward points earned in paying business expenses are taxable, or should be used to fund business expenses, just because the ATO hasnt figured out how to catch people yet doesn't make it tax free.

 

[CJEMNMAC]

of course not. Working hard and succeeding has nothing to do with whether Reward points should be taxed or not, nor does it have anything to do with being in business or not.

IMO, Reward points earned in paying business expenses are taxable, or should be used to fund business expenses, just because the ATO hasnt figured out how to catch people yet doesn't make it tax free.

I was definitely not having a go at you..Your opinion is that it should be taxed and that's fine

The government position at present however, is that it is not taxed and does not have to be taxed and therefore by default it is actually tax free

So a method of generating points ( where the tax office give you the option to prepay and the option to use a credit card and the option to get a refund if needed ) that does not have to be taxed or included in any FBT or tax return is the current situation. If the government have a massive problem with it, then change the law and stop it.....

 

[Pushka]

And have you ever asked the ATO if they have a problem with anyone prepaying them? This pseudo legal stuff doesn't really help anyone.

Unless you are a lawyer versed in ATO financial accounting this whole thread is pseudo legal and your post is stating the obvious.

 

[Maca44]

Its the points and how they are obtained and then spent, not the membership of the club that is in question.

There are no annual fees for FF membership.

If this was a fee for the QF lounge which is used for business travel then that would be deductible.

I should have worded that better as I did not mean the FF program, but the fee charged by the credit card company for your rewards subscription.

<redacted>

 

[theblank]

The government position at present however, is that it is not taxed and does not have to be taxed and therefore by default it is actually tax free

I dont beleive thats true. My understanding that the legal position has always been quite clear that rewards earned in business are income. I understand the ATO has just let it ride so far, because its too hard to determine a value and it would always be a mix of personal and business.

 

[Mogul]

I think the main issue here is that the ATO are unable to effectively come up with a $$$ value per point that won't be challenged in court. FF programs also clearly state that points have no monetary value. It is currently too hard for the ATO and I believe it will remain so for a very long time.

 

[ermen]

I dont beleive thats true. My understanding that the legal position has always been quite clear that rewards earned in business are income. I understand the ATO has just let it ride so far, because its too hard to determine a value and it would always be a mix of personal and business.

My legal reading of this is:-

1. Points (or precisely rewards) are not generally income taxable, unless there is a direct business relationship between the rewards provider and the recipient. So, most people are generally clear for income tax.
2. For FBT to apply, there has to be a direct and material nexus between the benefits earned, and the employment relationship (think the benefit has to be "given" by the employer, both explicit or tacit).
   1. i.e. an executive who travels around the world, and garners a lot of points on his AMEX credit card is generally not taxable (once converted to a reward). Why? Because the rewards are earned ancillary to his employment and as an indirect result of him using the corporate amex card (it is argued that the corporate amex card is used because of the administration savings to his company etc, and not to provide the employee with reward points per se). And the company is not actively saying you need to join the reward program
3. But what about the sole business owner who runs through all business expenses on his card? That likely won't be income taxable (given there is likely no relationship between the business owner and the reward provider). What about FBT? In my view, the ATO will have to prove that there was an arrangement existed materially to allow the said person to earn rewards. Or there was a part of an employer "in giving the benefit" (this would be murky in a sole trader situation). AFAIK, this has not been tested by the courts yet.

And as a minor side, as mentioned before - consumers will need to thank Ms Payne for establishing the principle that rewards earned as the result of private expenditure is not-taxable (if the ATO would have their way, they would want to tax everything!). It was actually a case we studied in Business Law back in the day (on the concepts of ordinary income)

1. In Payne (1996), ATO tried to tax Ms Payne on her reward flights under the guise that it was "ordinary income"
2. Ultimately, the learned judge ruled that the said flights did not fulfill the concepts of "ordinary income"
3. They also considered whether the award was FBT liable. To determine that, the courts needed to consider how was the reward provided? Was there a business relationship between Ms Payne and the reward provider at the time?
   1. Ms Payne was a partner at KPMG at the time, and ATO tried to argue that Ms Payne and the reward flight partner had a business relationship, as a result of KPMG's business relationship with the flight reward provider (the audacity and cheek!)
   2. Ultimately, the court found that the provision of the award resulted due to a personal relationship, between the reward provider and Ms Payne, and there was no active part by the employer in providing this reward (i.e. employer neither actively encouraged or provided for Ms Payne to join the rewards program).

You can read the sumary from an ATO perspective here:
TR 1999/6 - Income tax and fringe benefits tax: flight rewards received under frequent flyer and other similar consumer loyalty programs (As at 17 August 2011)

 

[ermen]

I think the main issue here is that the ATO are unable to effectively come up with a $$$ value per point that won't be challenged in court. FF programs also clearly state that points have no monetary value. It is currently too hard for the ATO and I believe it will remain so for a very long time.

Points are not taxable.
The reward is.
Again our friends at the ATO have come up with a table (see the TR posted above 1999/6).
Is it fair? I don't know. 70% of published fare for a business ticket! (again let's give the ATO the benefit of the doubt - this was pre AFF days if you bought a reward ticket for 70% of full fare... my my...).

Edit: point 11 allows for an alternative "fair market value". You should tell the ATO you can buy AS miles for US2.1c to redeem on CX

++++++++++++

[TABLE="width: 100%"][TR][TD="width: 99%"]10. In respect of free air tickets and ticket upgrades, the Commissioner accepts a valuation method based on a percentage of the full published fare (referred to in the industry as the full undiscounted fare) for economy, business and first class travel of the relevant airline. The percentages to be adopted for this method are detailed in the following table:
[TABLE="width: 80%"][TR][TD="align: left"]Flight Rewards[/TD][TD="align: left"]Economy Class[/TD][TD="align: left"]Business or First Class[/TD][/TR][TR][TD="width: 33%"]International[/TD][TD="width: 33%"]35%[/TD][TD="width: 33%"]70%[/TD][/TR][TR][TD="width: 33%"]Domestic[/TD][TD="width: 33%"]45%[/TD][TD="width: 33%"]70%[/TD][/TR][/TABLE][TABLE="width: 100%"][TR][TD="width: 99%"]11. The above table is to be used as a guide in determining the fair market value. The percentages take into account restrictions applicable to flight rewards in respect of each class of fare and are based on fare information provided by the airline industry. Any other method of valuation that produces a fair market value is accepted by the Commissioner.[/TD][/TR][/TABLE][/TD][/TR][/TABLE]

 

[lovetravellingoz]

I think the main issue here is that the ATO are unable to effectively come up with a $$$ value per point that won't be challenged in court. FF programs also clearly state that points have no monetary value. It is currently too hard for the ATO and I believe it will remain so for a very long time.

Indeed.

Redeem for a toaster or flight? No way to know in advance.

Will the points be used, or will they expire?

 

[CJEMNMAC]

I dont beleive thats true. My understanding that the legal position has always been quite clear that rewards earned in business are income. I understand the ATO has just let it ride so far, because its too hard to determine a value and it would always be a mix of personal and business.

Yep understand.. I guess we can debate this all day.

I am not saying it is not income.( it maybe ? ). From my perspective, unless the government ( ATO ) actually place a value on it ( the personal redemption derived from the points accrued from business ) and actually tax it ( or enforce some sort of tax liability ), it is tax free.

I will leave it at that

 

[N860CR]

In other news, Westpac has made nearly $4bil in 6 months, so clearly we need to crack down on these frequent flyer point scams as they are being sent broke.

 

[straitman]

AFF policy is never to discuss moderation and this is how it's got to be folks.

 

[nutwood]

The question is, if FF points get caught in the FBT net, where will it stop? You gain WP status through your business travel, then go on holiday with the family. Should you be noting the benefit your family gains by accompanying you into various lounges. Can just see the diary notes: "One toasted ham sandwich (with cheese), one toasted ham sandwich ( no cheese), glass orange juice, half glass SSB...."
Should be taxable. It's a kickback from the airline as a reward for the money your business has spent with them.