ATO shine spotlight on customer loyalty programs and fringe benefit tax
Employees’ use of business or personal credit cards linked to customer loyalty programs, as well as substantial personal frequent flyer points obtained through business travel, may result in organisations coming under investigation by the Australian Taxation Office (ATO) for providing employees with taxable fringe benefits.
To ensure minimal fringe benefit tax (FBT) exposure, businesses must review their policies if employees accumulate reward points using a credit card or frequent flyer customer loyalty program.
In their review of customer loyalty programs, the ATO has indicated the existing audit selection criteria are not limited to the general understanding of those employees who accumulate in excess of 250,000 points in a financial year. It also includes ensuring arrangements have no commercial purpose other than enabling employees to redeem the rewards they would otherwise be entitled to and that employees do not receive points in exchange for financial income.
Businesses that let employees redeem points accumulated through business credit cards on personal expenditure, as well as employers who use points to reward or incentivise current or potential employees, may leave themselves liable to FBT. This also extends to the use of personal credit cards by employees to accrue customer loyalty points when purchasing business goods, the cost of which is later reimbursed by the company. Businesses may also be exposed when former employees, on leaving the company, convert their points for money or other goods.
With the disruption of the taxi industry, a significant number of employers are now using Uber and other ride-sharing services for their employees’ travel.
Section 58Z of the Fringe Benefits Assessment Act 1986 (FBT Act), namely the FBT exemption for taxi travel between home and work locations, does not apply to Uber and other ride sharing services due to the definition of what constitutes a “taxi”. Under the FBT Act, a taxi is defined as a “vehicle that is licensed to operate as a taxi”. Therefore the Section 58Z exemption cannot apply, as Uber drivers are not lawfully required to hold a license to operate as a taxi. Providing eligibility, business leaders may be able to apply for the minor benefit exemption as stated in Section 58P of the FBT Act.
Utilities and dual cabs
Utilities and dual-cab vehicles are only exempt from FBT providing the private use of eligible vehicles meets a certain criteria. This extends to travelling between home and work, with other private use needing to be “minor, infrequent, and irregular”. The ATO provides the example of occasionally taking rubbish to the tip.
Employers may be liable for FBT when the ATO deems regular private trips made by employees are frequent and regular (although minor) in nature. Common examples include picking or dropping off children on the way to or from work and using the vehicle to do grocery shopping. This also extends to driving long distances: however infrequent and irregular this might be, it is not considered minor. Business vehicles featuring advertising materials will not escape scrutiny, especially if vehicles are seen to be regularly parked at non-business locations.
To minimise any FBT exposure, employers are strongly recommended to review their ‘no private use’ policies and have controls in place to review an employee’s use of such vehicles.
Rami joined RSM in 1994 and is a director and national head of tax, RSM Australia with over 28 years’ experience in providing taxation advice and specialist tax consulting services. His experience includes providing income tax and fringe benefits tax advice to various businesses in diverse industries, from non-profit organisations to multinationals.
In addition to local knowledge provided by their advisers in 30 offices across Australia, RSM Australia, one of Australia’s leading professional services firms, draws on their international reach and scale to ensure clients stay at the forefront of the world’s best practices, technology and innovation within a rapidly changing global economy.
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