After a court case, the ATO has accepted that rewards employees personally receive from expenditures paid for by their employers are not assessable income.

The court case in question involved an airline flight reward program. In the case, the court decided that rewards received because of “business expenditure” are not assessable. The court’s reasons were that the reward was a result of a personal (non-service or non-business) contractual relationship with the company providing the rewards program.

In the court case referenced above, an employee who had accumulated points due to travels paid for by her employers decided to convert her points into travel tickets for her parents. The court in its deliberation, stated that the points were accumulated because the employee was part of the program and not the employer. As such, it held that any contractual relationship existed only between the employee and the airline operator despite all fares being paid for by the employers.

Pretty interesting ruling and one, no doubt, that would bring joy to the hearts of many frequent fliers. There’s, however, an exception to the above ruling. This occurs where a person intentionally provides a service because of prior understanding that they will receive flight rewards from their contractual relationship, that is, the person is expectant of entitlements.

The ATO has also come to terms with the fact that no amount of rewards from loyalty programs for customers such as Frequent Flyer rewards obtained from domestic purchases is assessable income. It has however specified that this view is subject to change in situations where the accumulated rewards in a year surpass 250,000 points as a result of business expenditure, but where such arrangements have no commercial purpose other than to accumulate reward points for the recipient.