ATO ID 2004/847: Deductions: work related travel - privately accrued consumer loyalty points
Date of decision: 6 August 2004
Year of income: Year ended 30 June 2003
Business line: Small Business/Individual Taxpayers

Issue
Is the taxpayer entitled to the value of an airline ticket as a work related deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997), where the taxpayer acquires the airline ticket by redeeming privately accrued consumer loyalty points?

Decision
No. The taxpayer is not entitled to the value of an airline ticket as a work related deduction under section 8-1 of the ITAA 1997, where the taxpayer acquires the airline ticket by redeeming privately accrued consumer loyalty points.

Facts
The taxpayer is an employee and uses their personal consumer loyalty program points to acquire an airline ticket for work related purposes. The consumer loyalty points were accrued through the taxpayer's private expenditure. The loyalty points redeemed to acquire the airline ticket were subtracted from the taxpayer's accumulated reward points. It is a condition of the consumer loyalty program that any accumulated points and the rights they confer cannot be sold, transferred, assigned or otherwise dealt with.

Reasons for decision
Summary: Section 8-1 of the ITAA 1997 allows a deduction for all losses or outgoings to the extent that they are incurred in gaining or producing assessable income or are necessarily incurred in carrying on a business for that purpose. However where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income they will not be deductible. In addition, losses or outgoings will not be deductible under section 8-1 of the ITAA 1997 where another provision prevents it. Subsection 21(1) of the Income Tax Assessment Act 1936 (ITAA 1936) provides that: where, upon any transaction, any consideration is paid or given otherwise than in cash, the money value of that consideration shall, for the purposes of this Act, be deemed to have been paid or given. The Federal Court in Payne v. FC of T (1996) 66 FCR 299; 96 ATC 4407; (1996) 32 ATR 516 ( Payne's Case ), held that a flight reward received by an employee taxpayer was not assessable on the basis of the reasoning in FC of T v. Cooke and Sherden 80 ATC 4140 (1980) 10 ATR 696, because the flight reward was not 'money' or 'money's worth' and it was not convertible into cash. In this case, the taxpayer acquired an airline ticket by voluntarily redeeming points under their consumer loyalty program. The redemption of the taxpayer's loyalty points is a 'transaction' according to the wide meaning given to the word under case law. As the consideration for the airline ticket was not paid or given in cash, the value of the consideration attributable to the airline ticket is determined according to subsection 21(1) of the ITAA 1936. Under the taxpayer's consumer loyalty program, the loyalty points cannot be transferred or assigned. For the purposes of subsection 21(1) of the ITAA 1936, the money value of the consideration given by the taxpayer is $nil because the consumer loyalty points are not convertible into cash ( Payne's Case ). To be eligible for a deduction under section 8-1 of the ITAA 1997 a taxpayer must incur a loss or outgoing. Here, the taxpayer has not incurred a loss or outgoing of any pecuniary value because the consideration deemed to be paid or given for the transaction is nil. Therefore, the taxpayer will not be entitled to a deduction under section 8-1 of the ITAA 1997 for the airline ticket acquired through the consumer loyalty program.

Legislative references: Income Tax Assessment Act 1997 section 8-1
Case references: Payne v. FC of T (1996) 66 FCR 299 (1996) 32 ATR 516 96 ATC 4407
Subject references: Deductions & expenses Non cash considerations Rewards programs