GST on certain loyalty points
Clauses 519(3), 520, 521 and 525
Submission
(23 – American Express, 24 – New Zealand Law Society, 62 – Minter Ellison Rudd Watts)
The proposed ability of operators of loyalty programmes to defer charging GST on the supply of loyalty points should also apply when the GST “reverse charge” provisions in the GST Act apply.
Comment
A number of submissions note that the legislation should make it clear that the proposed rules allowing deferral of GST on loyalty points until the loyalty points are redeemed will apply when the GST “reverse charge” provisions in the GST Act treat the New Zealand-resident purchaser of the loyalty points as supplying the points. Since the resident purchaser will be liable for the GST on the supply of the loyalty points, it should also be able to choose whether to defer the payment of the GST until those points are redeemed.
Officials agree that the deferral should be available to resident purchasers of loyalty points in situations where they are liable to account for GST under the reverse charge rules. The proposed legislation should be clarified to give effect to that intention.
Recommendation
That the submission be accepted.
Submission
(32 – KPMG)
If a loyalty programme operator is able to identify at the time of the redemption of loyalty points whether or not GST has been imposed on the points or whether GST is deferred until redemption, there should be no reason to prohibit access to the new rule.
Comment
KPMG welcomes the proposed changes but considers there is no need to require that 25 percent or more of the loyalty programme operating business (or associated person’s business) involves providing zero-rated goods or services.
The proposed rules defer the imposition of GST until the nature of the loyalty reward is known. The rules are meant to ensure that the supplier of the loyalty points does not charge the standard rate of GST on loyalty points if there is some possibility that the reward provided on redemption is a zero-rated supply – for example, air travel that could be either domestic (and standard-rated) or international (zero-rated). Therefore, by requiring that a proportion of the loyalty programme operator’s business involves the provision of zero-rated goods and services, the rules ensure that there is some likelihood that the underlying reward is a zero-rated supply.
Removal of the requirement that loyalty programme operators must provide zero-rated supplies as part of their business would allow loyalty programme operators who do not redeem their loyalty points for any zero-rated rewards to defer the imposition of GST until the redemption of the loyalty points. Since, on redemption, these operators would still be required to charge GST at 12.5%, including them in the proposed rules would unnecessarily delay the payment of GST, with consequent (unquantifiable) fiscal implications.
Recommendation
That the submission be declined.
Submission
(35 – PricewaterhouseCoopers)
The GST treatment of loyalty point transactions should be reviewed, and specific legislation enacted to cover the GST implications of loyalty point schemes more comprehensively.
Because there is little case law on the GST treatment of loyalty points, the New Zealand GST position regarding the issue and subsequent redemption of loyalty points is very uncertain. There are three specific areas of concern:
- whether the issue of loyalty points to customers is a supply for GST purposes;
- a possibility that a redemption of points in consideration for a supply or services could be a supply for a consideration upon which GST is payable, which would result in a double GST impost; and
- that the above uncertainties are complicated even further when loyalty points issued outside New Zealand can be redeemed for goods and services in New Zealand and when loyalty points issued in New Zealand can be redeemed for goods and services in another jurisdiction.
Comment
Officials note the first and third concerns regarding the need for clarity over the tax treatment of loyalty points received by a loyalty programme customer directly from a loyalty programme operator for acquiring goods from that operator and consider that further work is required on this issue.
Officials note, however, that there is no such uncertainty in situations to which the proposed legislation will apply (which is necessary to avoid over-taxation).
In relation to PWC’s second concern, officials agree that GST should not be imposed on both the issue of loyalty points and their subsequent redemption for goods and services. Conversely, officials consider that a loyalty programme operator will charge GST on redemption of loyalty points only in situations when they choose to defer the imposition of the GST under the proposed legislation.
Recommendation
That the submission be noted.
Submission
(67 – New Zealand Institute of Chartered Accountants)
The implementation date of the amendment should be grandparented so that any entities that have treated past loyalty programmes as proposed in the bill will not be subject to Inland Revenue scrutiny or penalty.
Comments
Officials do not consider there are sufficient grounds for making the changes retrospective. The policy of imposing GST on the form of business transactions has always been clear and the fact that some arrangements have given rise to an unwarranted tax impost does not in itself justify retrospectivity.
Recommendation
That the submission be declined.
Submission
(68A – Corporate Taxpayers Group)
The Group is supportive of the proposed amendments to allow the deferral of GST on certain loyalty transactions and sees the changes as a pragmatic approach for both taxpayer and government.
Recommendation
That the submission be noted.