A taxing question: can your business buy frequent flyer points?

By David Flynn, June 26 2017

TALKING POINT | Bulk-buying frequent flyer points can be the pathway to some extraordinary savings on business travel.

Case in point: United Airlines is currently offering bonuses of up to 75% on purchasing MileagePlus miles which can be used to book travel on Air Canada, Singapore Airlines, Thai Airways, United Airlines and other Star Alliance members.

A $3,500 investment in United miles is sufficient for two business class return flights from Sydney to Singapore, Hong Kong or Bangkok.

Read more: Bulk-buy United miles for huge savings on business, first class flights

United’s not alone in selling miles en masse – American Airlines regularly offers bonus sales on its Aadvantage miles, which can be used to book on Oneworld partners such as Qantas, Cathay Pacific and British Airways as well as Etihad.

Some savvy frequent flyers also jump onto sharp LifeMiles sales from South America's Avianca, to redeem those points on other Star Alliance airlines.

But how does the tax department consider such buy-before-you-fly purchases?

Unfortunately, the Australian Tax Office itself is pretty much in the dark on this.

“The ATO does not currently provide guidance on these arrangements,” a spokesperson for the Australian Tax Office told Australian Business Traveller, “and we have not identified where the ATO has previously considered the tax consequences of the purchase of pre-paid frequent flyer points.”

Points as a form of currency seems to be a puzzler for the ATO, which means that businesses which do buy them in advance of travel are in a bit of a grey area.

For example, can a small business claim the purchase of points as an expense in the same way that they might claim purchasing an actual ticket, and thus buy frequent flyer miles as a way of lowering their taxable income level? 

Or do miles sit on your books as an asset, to become a deductible business expense only after being spent booking a flight for business travel?

Another one to ponder: if the trip is necessary to produce income for your business, are the points deductible in the same way that an airfare might be?

An obvious rider here would be that when points bought through your business are redeemed, that needs to be for a business trip rather than to book personal travel – otherwise you’re entering a whole new world of perks and fringe benefits.

Regardless of the path you might choose, it’s paramount to keep records and documentation: especially when converting points into a ticket because unlike real-world currency, points have a decidedly flexible value.

If you do want to investigate buying frequent flyer points for your business, your first call needs to be to your accountant – that much the ATO can say.

“Whether in every case the arrangement results in the business acquiring an asset, or some other outcome, cannot be confidently stated based on the information available at this time,” the ATO spokesperson told Australian Business Traveller.

“Given these uncertainties, we would recommend that businesses  considering purchasing pre-paid frequent flyer points ensure that the taxation treatment is understood, which may require consulting with their tax professional or contacting the ATO for specific advice.”

David

David Flynn is the Editor-in-Chief of Executive Traveller and a bit of a travel tragic with a weakness for good coffee, shopping and lychee martinis.

QF WP

QF WP

Qantas - Qantas Frequent Flyer

10 Aug 2016

Total posts 55

I'm sure at some stage, there will be either ATO Private Rulings on this matter or legislation will be introduced. Either way, there are certainly businesses that buy points from merchants   

wafliron

wafliron

09 Mar 2013

Total posts 3

Third last paragraph - assume that "account" is meant to be "accountant"?

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