Tax Focus – Loyalty Programs GST

A ruling on the 4 April 2012 has been passed clarifying the role of GST in regards to consumer loyalty programs.

GST on loyalty programs has previously been frustratingly complicated for consumers and vendors.

A loyalty program is an agreement between customers and vendors, where the customer benefits from remaining loyal to a brand,through either a points system or other benefits.

When the customer redeems the points with the vendor, the operator of the program reimburses the programs partners for the provision of their goods to the loyalty program. The ruling determines if the supply of the productor goods is GST free.

In the guidelines, rules applying to the loyalty program arrangements,where the supply of rights from the operator to the program partner is treated wholly as a taxable transaction.  In some circumstances, the tax is not disputed by the input tax credit entitlement of the program partner.

This ruling is put into effect immediately, however allowance period of six months from the date of issue will be given to allow operators and vendors to adjust their systems.