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Taxing frequent flyer issue nearly resolved but...

Publication date: 08 Jul 98 | Source: THE TAX INSTITUTE

The Taxation Institute of Australia has welcomed the Australian Tax Office revised draft ruling which states that all frequent flyer rewards even if received as a result of tax-deductible expenditure are not subject to income or fringe benefits tax.

"The Taxation Institute strongly argued that frequent flyer points not be subject to income tax or fringe benefits tax in an earlier submission to the ATO," said Taxation Institute of Australia President, Mr Ken Spence.

"Although the income tax issue relating to frequent flyer rewards received by employees was resolved in the Federal Court in Payne's case, there remained a shadow over the question of assessibility for self employed individuals who had signed up to frequent flyer programs," he said.

"This draft ruling goes most of the way to relieving the uncertainty for individuals who should now have no fear of assessment of frequent flyer benefits under such programs."

"However, it is very unfortunate that this is still a draft ruling rather than a finalised view of the ATO on the subject, given that the ATO is still to formally withdraw some earlier rulings which sought to assess frequent flyer benefits."

"In addition, this draft ruling now raises some real uncertainty as to the tax treatment of customer loyalty programs where business expenditure results in points which are redeemed for items other than flight rewards."

"This associated issue cannot be left hanging as, according to the ATO, up to 5% of benefits are received in this form," Mr Spence said

The Taxation Institute submission argued that benefits of frequent flyer programs and other similar reward programs, whether convertible into cash or not, should not be classed as income because the windfall was not generated as a direct or indirect consequence of an individuals employment or business.

Further, the submission argued that any benefit received as a consequence of membership in a program cannot be said to result from the carrying out of a business or carrying out the operation of a business.