Announcements
On 7 August 2020 the government proposed further changes to the JobKeeper extension. For more information, visit the Treasury website.

ATO Community

Re: Are tools purchased using loyalty points deductible?

Highlighted

Newbie

Views 201

Replies 10

If an employee trades person purchases tools and equipment using loyalty points accumulated through a combination of work related & private hobby expenditures, is the expense deductible?
The invoice includes a combination of items that would be immediately deductible, as well as depreciable items. The entire invoice was paid using loyalty points.
1 ACCEPTED SOLUTION

Accepted Solutions
Highlighted

Best answer

Devotee

Replies 6

Not deductible mate because you didn't spend money...

 

If you try to see it as money, then the receipt of the points is assessable income (so claiming the "expense" of the points would just cancel the income out and you are in the same spot)

 

You got something for free - I would stop there and be happy

10 REPLIES 10
Highlighted

Newbie

Replies 0

Also, I know about Payne's Case, but I believe that this is different, as the loyalty points do have a money value or "money's worth" & could have redeemed for goods for private use or resale. The tools are also a tangible item item with a market value - unlike the flight.
Highlighted

Enthusiast

Replies 8

Hi @FuzzyLogic 

 

Thanks for your great question and welcome to ATO Community!

 

Claiming deductions is a self-assessment, but there are certain conditions that must be met in order to claim work-related deductions. These are:
1) You must have spent the money yourself and weren't reimbursed.
2) It must directly relate to earning your income.
3) You must have a record to prove it.

 

You can find more information about claiming deductions here.

 

There are industry-specific rules relating to deductions tradespeople can claim. You can find out more information about these deductions here.

 

There is also a handy tipsheet online which might also be of use to you.

 

I hope this information can help!

Highlighted

Newbie

Replies 7

Hi Caleb,
Many thanks for your response; however, it doesn't really answer my question. I'm familiar with the general rules surrounding deductions. My questing specifically is whether a deduction can be claimed for items otherwise meeting the deductibilty rules, where the purchase was made entirely with loyalty points.
That is, as per point 1 of your response:
1) You must have spent the money yourself and weren't reimbursed.
Are the points I have spent treated as money (as the points & tools both have a "money's worth" value per Payne) or is money strictly defined as cash? & if so, is there a policy/ruling legislated definition etc where I can find this.
Highlighted

Best answer

Devotee

Replies 6

Not deductible mate because you didn't spend money...

 

If you try to see it as money, then the receipt of the points is assessable income (so claiming the "expense" of the points would just cancel the income out and you are in the same spot)

 

You got something for free - I would stop there and be happy

Highlighted

Newbie

Replies 5

Hi MCA, thanks for buying in Smiley Happy
It's not actually my tax return in question - so I'm not looking a gift horse in the mouth. It is actually the circumstances of an acquaintance though, and my friends & I (all accounting graduates/ practioners) are debating the issue.
We did consider your suggestion that in order to claim a deduction for the value of the points, we may be required to realise that value in the form of TI. However, the deductibilty of an expense is determined by the character of the expense itself, and the income (If any) it will produce, rather than the character of the funds with which it is purchased. For example, if a deductible item were purchased with exempt income, or a windfall gain it would still be deductible.
Further, according to PS LA 2004/4 (GA):
"Rewards received under consumer loyalty programs will be taxable only where the facts demonstrate that the reward is received as part of an income earning activity and:
·there is a business relationship between the recipient of the reward and the reward provider, and
the benefit is convertible directly or indirectly to money's worth, or
the taxpayer is carrying on a business; and section 21A of the ITAA 1936 operates to include the reasonable value of the non-cash business benefit in the taxpayer's assessable income"
As the taxpayer in question is an individual, non business tax payer with no business relationship with the reward provider, it would seem, according to this that the points would not constitute TI.

Also, I believe that the terms 'money' & "money's worth' are important.
In ATO ID 2004/847 Payne's case is rellied upon to disallow a deduction for an airline ticket for work travel purchased with an employee's loyalty points.
"Payne v. FC of T (1996) 66 FCR 299; 96 ATC 4407; (1996) 32 ATR 516 (Payne's Case), held that a flight reward received by an employee taxpayer was not assessable on the basis of the reasoning in FC of T v. Cooke and Sherden 80 ATC 4140 (1980) 10 ATR 696, because the flight reward was not 'money' or 'money's worth' and it was not convertible into cash."
In this case, both the points & the items they were converted into do have a 'money's worth' value.

s8-1 of the ITAA 1997 states that in order to be eligible for a deduction 'a taxpayer must incur a loss or outgoing'. However it does not stipulate that the loss or outgoing must be in cash.

Does this make you less certain of your position at all? I'm not sure that there is a definitive ruling on this (at least, we can't find one), but I'm interested in the discussion.
Highlighted

Community Manager

Replies 4

Hi @FuzzyLogic

 

I would suggest that you contact our early engagement team to discuss. 

Highlighted

Newbie

Replies 3

Will the early engagement team be updating this thread with the response? Or how will we become aware that there is an ATO view on this issue?

Highlighted

Devotee

Replies 2

ATO would contact you direct. This forum isn't an appropriate place to discuss individual circumstances.

 

I would be expecting a wait of up to 2 months given their workload. Something like 6 times the number of lodgements in early July compared to last year, plus JobKeeper and Cash Flow Boost, and now JobKeeper extention... they are pretty busy.

Highlighted

Newbie

Replies 1

That would be fine, if they add me to the list of people who want to have the answer. But I don't think they want to be inundated by people all asking the same question. I am quite surprised this question hasn't been brought up before. There has been considerable discussion on the tax consequences of using rewards points earned from business travel being redeemed for personal travel. I think the last I saw on that was that the individual would not have to include the value of the travel redeemed as taxable income.

 

I see this new question as being a corollary of the one above but in its photgraphic negative.

 

The new question is about rewards points being earned from personal purchases then being used to redeem a business item. If the person had redeemed a personal item we don't expect them to include the value of the redemption as taxable income, but if they then outlay their own money on a business expense they can claim a tax deduction. So why should the individual be "disadvantaged" by redeeming points to "purchase" a business item and outlaying their own money to buy a personal item? It seems to be discriminating against the way in which they choose to redeem their loyalty points.

 

Surely, this is not about one individual's personal circumstances and therefore providing an answer to the original question posed here would help clarify the situation for all others caught up in the same situation. I have an interest because my daughter asked me this same question, but at least she only just redeemed the purchase recently so can wait for an answer.