Business owners' reward points could soon come under ATO scrutiny

Business owners' reward points could soon come under ATO scrutiny
Business owners' reward points could soon come under ATO scrutiny

Business owners could be faced with the possibility of declaring purchases through customer loyalty schemes as part of their assessable income, as the tax office has been reviewing its treatment of loyalty points received via business spending since April 2016.

At present, business owners only risk an audit from the ATO if they accumulate more than 250,000 reward points a year on a corporate credit card. That many point translate to 104 return flights between Sydney and Melbourne, or 24 return flights Sydney to Singapore, in flexible economy class, according to Qantas’ frequent flyer scheme, according to an article in the Australian Financial Review.

HLB Mann Judd Sydney tax partner Mariana von Lucken said the ATO informed an industry partnership meeting on fringe benefits tax sometime back.

She said all business owners may soon have to declare the value of their redeemed points, for fringe benefits assessment if they are also an employee, or for "non-cash business benefits" assessment if they are an owner only.

"There's no confirmation the ATO will do it and on behalf of my clients I wouldn't welcome it, but you would have to think it's an easy thing for them to look at in an environment where they are constantly being asked to find more revenue," she was quoted by the AFR.

Points redeemed for business expenses would probably never be assessable, Lucken said, or in any case could be instantly written off up to $20,000 in businesses with turnover under $10 million.

But redemption for personal expenses could be targeted.

The ATO also looks at social media posts for information on whether that "business trip" was in fact a family holiday, Lucken said.

It could also use social media snooping to help determine how many points were earned from genuine non-business expenses in the first place, to assist in a tax assessment, she said.

The ATO did not respond directly to a query from the newspaper on whether it would take a more aggressive stance on loyalty points arising from a business arrangement, but simply restated its existing audit selection criteria for employee reward programmes, where staff are provided with points or something similar as a reward or as an incentive, rather than money or a non-cash benefit.

Such programmes would come under scrutiny if they are "so contrived and artificial that they have no commercial purpose other than to allow the recipient to receive the rewards, or the rewards are a substitute for income which would otherwise be earned, or the points accumulated exceed 250,000 points per annum,” an ATO spokesperson said.

However, von Lucken said the law was less clear when it came to business owners, and it was possible that at some point, the ATO may require business owners to declare the redemption of such rewards as part of their assessable income.

"While there have been no instances of this to date, business owners should make sure their accountant is on top of such concerns, and can advise them appropriately if things change in the future," she said.

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Ato Reward Points

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