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Payne v FC of T

Payne was working for KPMG and during her time there, she had to travel quite often. Qantas is an audit-partner of KPMG, she was recommended to use Qantas for her trips and all business expenses were covered by KPMG although this was not a requirement by Qantas. In 1991, she joined the Qantas Frequent Flyer Program (FFP) and paid $95 membership fee using her own personal credit card. From 1991 to 1993, she accumulated over 1900000 points and most of the points was accumulated through her business related travel and accommodation. These were paid for by KPMG. In September 1993, she used the points to buy ticket for her parents from England to Australia to visit her.

The issue in the case is whether the value of the flight reward ticket was assessable income for the taxpayer during that year or was it a benefit from the employer (KPMG) to her as an employee?

Commissioner’s argument
The Commissioner included the reward ticket in the taxpayer assessable income for that year. They claimed that the flight tickets constituted the derivation of income under section 25(1) and sec 26(e) of the Income tax Assessment Act. Sec 26(e) provided that “the assessable income of the taxpayer included the value of all benefits given or granted to a taxpayer in respect of, or for or in relation directly or indirectly to, any employment of or services rendered by the taxpayer. They claimed that the taxpayer gained free ticket for her personal use by travelling frequently and all expenses were met by her employer, thus it was a benefit to her. She would have not earned the point if she had not taken flight for business purposes.

Taxpayer’s argument
The taxpayer argued that “the provision of the free tickets occurred by reason of the crystallisation of a contractual entitlement and therefore was not a benefit given to the taxpayer”. She claimed that the ticket is a result of a contract between her and Quantas (FFP program), as she paid for the membership fee by her own money and she gave the ticket to her mother to use.

Courts decision
The court agreed that this is a contract between the taxpayer and Qantas (FFP program). They found that this is merely a contract between Payne and Qantas, as KPMG did not play any part of it. KPMG did not arrange or encourage Payne to take part of the scheme and they also did not pay for Payne’s membership fee. To make decision on the case, the Court also investigated whether the ticket was earned as something comes in and it is money or money’s worth in hand of the taxpayer. They ruled that the market value of an airline ticket received under a frequent flyer program was not ‘money or money’s worth because it could not be converted into cash and as stated in the program, she could not transfer or no one else could use it except for herself and her family member. Thus, in this case, her membership of the program could not amount to income according to ordinary concepts because of its non-transferability for value”.



Payne v Federal Commissioner of Taxation (1996) ATC 4407