On 24 August 2011, the Commissioner issued GSTR 2011/D3 – a draft ruling dealing with the GST treatment of loyalty programs. The due date for submissions on the draft is 7 October 2011.
Most of the ruling is not surprising (although it is, happily, different to the view of the ECJ in Loyalty Management). There are, however, some interesting comments concerning:
- the supply of rights to GST-free supplies . The draft seems to suggest that a GST-free supply can be made to one party of rights to GST-free supplies to be made to a third party – Redrow on steroids?
- Item 4 of subsection 38-190(1) comes up again – is the supply of points (say for an overseas flight) a supply in relation to rights for use outside of Australia?
In the generality of cases, the ruling confirms what you would expect:
- The purchase of goods or services from a merchant including points is a supply to the customer of the goods or services for the price paid – no separate account is taken of the “points”. GST is payable if the goods or services are taxable supplies
- Where there is a “rewards partner” of a merchant – i.e., the rewards arise to a member of a rewards program operated by a third party – the supply of points to a customer of a merchant as a result of purchasing goods or services from the merchant is not a taxable supply of points because no consideration is given to the rewards partner by the customer for the points.
- Payments made by the merchant to the rewards partner for the provision of the points to the customer are consideration for a taxable supply by the rewards partner to the merchant. In general, GST is payable by the rewards partner and the merchant is entitled to an input tax credit. Of course, if the merchant makes input tax supplies, it is likely that no credit is available to the extent that the loyalty is provided to promote the input taxed supplies.
- On redemption of the points and claiming the award, a supply is made to the customer by the rewards partner. In the absence of additional consideration paid by the customer, this is not a taxable supply because the redemption of the points is not consideration.