The tax question has become more relevant in an age when people are often accruing many thousands of points, frequently under the umbrella of a company or organisation (whether in the form of a personal or a business credit card). Whispers abound on the internet that the Australian Taxation Office (ATO) is set to start taxing rewards points in order to prevent fraud, e.g. people embezzling hundreds of thousands of rewards points from various programs, using such methods as overspending on cards or opening fake accounts.
The fact is, however, that with some exceptions, rewards points remain tax-free (for now, at least). The ATO will look into a taxpayer’s circumstances to determine whether the points could be assessable when:
- the arrangement in place is so contrived and artificial that it has no commercial purpose other than to earn rewards points
- it seems as though the rewards are being received instead of any income that would otherwise be earned (e.g. if an employee were to receive rewards instead of an annual bonus) and/or
- points gained within a business relationship or as a result of business expenditure exceed 250,000 in one year. (Seeing as many credit cards have rewards points capping in place – either annual or monthly, ranging from 6000pts to 300,000pts – it is often difficult to exceed 250,000 points anyway.)
On the subject of tax, paying yours could reap its own rewards, because the ATO actually prefers it if you pay your tax bill using a credit card! (The precise wording on the website is: “To make a payment to the ATO the preferred payment methods are BPAY® and credit card.”)
This can be a good way for businesses and individuals to earn more reward points, and manages to put a positive slant on paying your taxes! Be aware, though, that some banks have cottoned on to this and have either made ATO payments exempt from rewards point accrual entirely or have reduced the amount of points you can earn per dollar spent.