Private ruling: GST and overseas loyalty program transactions
Published: May 2012

Ruling: Q1: Are you liable for GST on supplies you make under a loyalty program arrangement? | A1: Yes.

Relevant facts and circumstances: You are an Australian entity registered for GST. You have entered into a contract with the operator of a loyalty program. The operator is a foreign company based overseas. This agreement states that the operator acts as an agent on behalf of you. You sell your products and services on your own behalf. You set the prices and conditions for your products, including proposed retail price, shipping destinations and fees and taxes (which are for approval by the loyalty program operator). The agreement states that all transactions take place between you and the member, and the member is purchasing directly from you and that the operator is not a party to that transaction. To fulfil your obligations under the agreement, you acquire items in Australia and dispatch them to Australian members at Australian addresses. Australian members log on to the loyalty program website and select the product(s) they wish to redeem their points for. You receive an order confirmation from the loyalty program. The program operator assigns a dollar value to this transaction based on the number of points redeemed. The program operator converts the member's points into a cash value, takes out their fees and remits the remaining funds to you. You only ship your products within Australia.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 · Division 9 | · Section 38-190

Reasons for decision: Summary: You are liable for GST on the taxable supplies you make under a loyalty program. The loyalty program operator facilitates sales on your behalf, and you make the sales or supplies to the loyalty program members. In fulfilling your obligations under the arrangement you are also making a supply to the loyalty program operator. | Detailed Reasoning - Detailed reasoning: The information you have provided (contract, payment statements) establishes that the loyalty program operator does not intend to supply goods to their customers, rather they arrange for you to make those supplies. The loyalty program operator does not intend to take ownership of your goods before they are provided to a customer, and your contract specifies that they are not a party to purchases or sales made using their website. The essence of a loyalty points program is that, subject to certain conditions, the holder of the points has a right to redeem them in return for rewards. Hence, points may be described as rights to receive supplies (paragraph 77, GSTR 2012/1). When a member wishes to redeem their points for a reward, the loyalty program operator arranges for the reward to be provided to the member by you. Where a loyalty program member obtains a reward, a supply is made to the member. As the structure of your loyalty program is that you are the supplier of the goods rather than the loyalty program operator, you are making that supply of goods to the member (see paragraph 23, GSTR 2012/1). In brief, you make two supplies, a supply of the reward to a member and another supply (to the operator) of entry into an obligation to provide the reward following an order. Your supply of the reward to the member is not considered to be a taxable supply because the member does not provide you with any consideration. The contract with the loyalty program operator requires you to supply rewards to program members. As a result of this arrangement with the loyalty program operator, when you provide goods or services to the member you also make a supply to the loyalty program operator. This is a service of supplying the rewards to members. Under the agreement, the operator pays you the full amount of the order whether or not there is any separate amount payable by the member to them (under a points plus pay arrangement) (see paragraph 104, GSTR 2012/1). The payment by the operator is consideration for your provision of the reward to the member. The payment from the operator to you is in respect of this supply, and is consideration for this supply. These supplies are connected with Australia, as you have provided this service while you are in Australia as part of an enterprise that you operate in Australia (subsection 9-25(5) GST Act). Although the service is provided to a non-resident outside Australia, it is not GST-free under section 38-190 of the GST Act. This is because it is a supply under an agreement entered into with a non-resident and the supply is provided, or the agreement requires it to be provided, to another entity in Australia (subsection 38-190(3). As the reward is provided to an Australian member, the supply to the operator of providing the reward is also connected with Australia. You make the supplies as part of your enterprise and you are registered for GST, therefore the supplies are taxable supplies. The operator provides you with a document that indicates the amount of consideration that they are forwarding to you after their fees have been taken out. The amount of GST that you are liable to pay is not reduced by the fees and commissions you pay to the operator, even though the final amount of the money that you receive from the operator is reduced by these fees. The loyalty program operator's fees relate to a separate supply that they make to you (for facilitating the sales). Therefore, there are two supplies made under this arrangement and shown in the document (your supply and their supply). Even if these two supplies occur in the same transaction, or are evidenced by the same document, it is not possible to offset one against the other for GST purposes. Where a sale to a customer is made using points only, it is not necessary for the loyalty program operator (or you) to provide a tax invoice to the customer. This is because the redemption of points by a member is not consideration for a supply of a reward to the member (paragraph 24 GSTR 2012/1). The redemption of points is merely the exercise of a contractual right and not the provision of consideration. However, in this scenario you still make a taxable supply (to the loyalty program operator) for the full value of the supply of the product as the loyalty program operator provides consideration for your supply of provision of the reward. You should provide a tax invoice to the loyalty program operator for these supplies. Where a sale is points + pay, the customer provides consideration to the operator for your supply of the goods, as well as points for the right to receive the goods. Under the agreement, the operator pays you the full amount whether or not there is any separate amount payable by the member to them. We consider that this additional amount paid to the operator can be characterised as consideration for a right to receive the goods rather than a direct payment for your supply of the actual goods. As this right to receive goods is a supply made by the operator you do not need to provide a tax invoice to the customer. In this scenario the situation remains that you have made a supply to the operator of the provision of rewards and your GST liability is in relation to that supply. You are liable for GST based on the full value of that taxable supply, without any reduction for their fees. You should provide a tax invoice to the loyalty program operator for this supply.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.