ATO ID 2013/1: GST and points fee in a loyalty program
Date of decision: 4 January 2013
Business line: Indirect Tax

Issue
Is an entity, a loyalty program operator, making a taxable supply to a program partner where:

Decision
Yes, the entity is making a taxable supply of points to the program partner to the extent that the points would be redeemed for Division 100 vouchers and those vouchers would not be redeemed for supplies which are GST-free or input-taxed.

Facts
The entity, a GST registered loyalty program operator, establishes a customer loyalty program where members of the loyalty program can accumulate loyalty points for their eligible purchases and redeem these points for rewards. The program contains the features of the loyalty program arrangements described at paragraphs 6 to 14 of Goods and Services Tax Ruling GSTR 2012/1. In particular: The points can be redeemed by the member for goods and services, as well as vouchers that can be later redeemed for goods and services. The vouchers that are redeemed by members are subject to the modified rules in Division 100 of the GST Act.

Reasons for decision
Summary: Section 9-5 of the GST Act lists the elements for a taxable supply, including that there is a supply for consideration. Sections 9-10 and 9-15 of the GST Act define 'supply' and 'consideration' very broadly. Having regard to the terms and conditions of the participation agreement, there is a supply (of points) made by the loyalty program operator to the program partner for which the consideration is the points fee paid by the program partner. Accordingly, the supply of points will be a taxable supply if the other elements of section 9-5 of the GST Act are met. It is clear that the supply is both connected with Australia and made in the course of furtherance of the enterprise carried on by the program operator (being a GST registered taxpayer). The key remaining element is whether the supply is otherwise GST free or input taxed. Consistent with the view expressed at paragraph 75 of GSTR 2012/1, the supply of points by the program operator to the program partner constitutes a supply of 'rights', being the rights that program members obtain on receiving points. Such supply is GST free to the extent it is GST free under Division 38 or paragraph 9-30(1)(b) of the GST Act or is input taxed to the extent that it is input taxed under Division 40 or paragraph 9-30(2)(b) of the GST Act. For example, to the extent that the points would be redeemed by members for other supplies which are GST free or input taxed pursuant to paragraph 9-30(1)(b) or 9-30(2)(b) of the GST Act , such supply of points is GST free or input taxed. However, where the points would be redeemed for rewards, being vouchers, the GST treatment of the points is not immediately clear where the vouchers are subject to the modified rules in Division 100 of the GST Act. It has been argued that the GST treatment of the supply of points should follow the character of the underlying rewards provided to members. Therefore, to the extent that the underlying rewards provided to members are vouchers that are subject to the modified rules in Division 100 of the GST Act and treated as non-taxable supplies, the supply of points should similarly be non-taxable to that extent. However, as stated previously, the supply of points is characterised as a supply of rights rather than the underlying rewards provided to members and is a taxable supply to the extent that it is not otherwise GST free or input taxed. Where the supply of points would be redeemed for vouchers which, in turn, would be redeemed for supplies which are GST free or input taxed, such supply is GST free or input taxed to that extent because of paragraph 9-30(1)(b) or 9-30(2)(b) of the GST Act. Accordingly, the supply of points is a taxable supply to the extent that it would be redeemed for vouchers which are subject to the modified rules in Division 100 of the GST Act and those vouchers would not be redeemed for supplies which are GST free or input taxed.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 9-10 section 9-15 paragraph 9-30(1)(b) paragraph 9-30(2)(b) Division 38 Division 40 Division 100
Related public rulings and determinations: GSTR 2012/1
Subject references: Goods and services tax Customer loyalty programs Vouchers