Customer Loyalty Programs
- Do you provide employees with a business credit card associated with a customer loyalty program?
- Are employees able to convert loyalty points accumulated in connection with the business credit card to rewards (e.g. goods, personal flights, holiday accommodation etc.)?
- Do you as an employer use the points accumulated under your business credit card to reward employees (or potential employees) with non-cash benefits?
- Do any of your employees accumulate substantial frequent flyer points on a personal frequent flyer program (e.g. Qantas, Virgin) as a result of work related travel?
- Are those employees able to convert the points to acquire rewards such as personal flights or to upgrade personal travel from economy to business?
- Do you have employees who use their personal credit card to acquire customer loyalty points by paying for business expenditure (which you as an employer reimburse)?
If you answered YES to any of the above, you may find yourself under the scrutiny of the Australian Taxation Office (ATO) for providing taxable fringe benefits to employees.
The ATO has indicated that it will be targeting the use of customer loyalty programs. Employers who fall under the microscope may find they are left exposed to a substantial FBT liability. Employers may even be left holding the bag so to speak, where a former employee converts points to rewards AFTER they leave their current employment.
Don’t be fooled if you think the ATO audit selection criteria is limited to employers who accumulate more than 250,000 loyalty points in an FBT year. The ATO will also apply the following criteria:
- The arrangement has no commercial purpose other than to allow the recipient to receive the rewards they are entitled to; and
- The rewards are being received in substitution for income that would otherwise be earned.
If you or your employees accumulate reward points under a customer loyalty program (e.g. credit card or frequent flyer), we strongly recommend that you review the arrangement to ensure that any FBT exposure is minimal.
If you are unsure if the accumulation or use of customer loyalty points by your employees exposes you to an FBT liability, we recommend that you contact your local RSM office for further advice.
To Uber or Not to Uber
It has been reported that a significant number of employers have shifted away from using conventional taxi travel for their employees, to using the Uber ride sharing service.
Whilst this may not impact the tax deductibility of business related travel, the FBT exemption for taxi travel between home and work available under Section 58Z of the Fringe Benefits Assessment Act 1986 (FBT Act) will not apply to Uber travel.
The difference between the ATO’s view of taxi travel for GST purposes (given the recent Uber GST case) and taxi travel for the purposes of the Section 58Z exemption, lies within the definition of what is a “taxi”. The FBT Act defines a taxi as a ‘vehicle that is licensed to operate as a taxi’. Uber drivers are currently not required to be licensed to operate as a taxi, therefore the Section 58Z exemption cannot apply.
However, employers may still be able to apply the minor benefit exemption under Section 58P of the FBT Act, providing the eligibility criteria is met.
Utilities and Dual Cabs – Are they Exempt?
There is a common misconception that utilities and dual cab vehicles are exempt from FBT. This is not the case. Where the private use of eligible utility and dual cab vehicles meet certain criteria, the private use may be exempt from FBT. In general, the private use must be:
- Limited to travel between home and work; and
- Any other private use must be minor, infrequent and irregular.
The ATO uses the example of minor, infrequent and irregular private travel of such vehicles as being an occasional trip to the rubbish tip.
Regular private trips by employees may be deemed to be frequent and regular (although minor) by the ATO, leaving employers exposed to a potential FBT liability. Examples of private use of utilities and dual cabs that may lead to an FBT exposure include:
- Using the employer’s utility or dual cab to drop off or pick the kids up from school on the way to /from work.
- Using the employer’s utility or dual cab to do grocery shopping during the week or on the weekend.
- Using the employer’s utility or dual cab to drive to the country for a family weekend away (long distance private travel may be infrequent and irregular but it is not minor).
There may be no escaping the scrutiny of the ATO either, if your business vehicles are decorated with advertising material or logos. Particularly if they are regularly seen parked at non business locations on weekends or public holidays.
We strongly recommend that employers review their ‘no private use’ policies and have controls in place to review an employee’s use of such vehicles to minimise any FBT exposure.
At RSM we can help you stay on top of alerts and ensure you are kept up to date.
If you have any queries in relation to how fringe benefit tax impacts on your business, please contact your local RSM office.
Take a look at other recent Tax Insights