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Tax Law – Airline transport fringe benefits (Part 2)

This article is part 2 of our two-article series on Airline Transport Fringe Benefits. You can find part 1 by clicking on the following link:

Part 1 of this article dealt with how to value airline transport fringe benefits. This part will deal with consumer loyalty programs and other discounts and how they impact on taxable value.

Extent of the issue

The controversy over such programs does cover situations where the benefit provided is technically an airline transport fringe benefit – ie the employer is an airline or travel agent, and the employee is subject to stand-by restrictions. However, the controversy extends beyond this to airline transport benefits that would ordinarily be classified as residual fringe benefits.

Consumer loyalty programs

The original controversy in a 1999 Ruling dealt with flight rewards received from a consumer loyalty program (commonly called a frequent flyer program). The confusion arose from a Federal Court case, Payne v FC of T.


From the Payne decision the ruling only covered flight rewards that satisfied the following:

  • the benefit consists of free flights or upgrades, and attached free accommodation or car hire;
  • the benefit is available only to the member or their immediate family; and
  • the benefit is not transferable or redeemable for cash.

The consumer loyalty / frequent flyer program must be a marketing tool in which the customer is in an arms length with the provider and the membership of the program is dependent on paying fees, and the receipt of “points” for the flight rewards depends on the consumer buying goods and services from the provider.

Not a fringe benefit

The ATO stated that, if Payne style flight rewards were granted, then they are normally not fringe benefits at all. They arise solely from a personal contractual relationship and not from employment.

However, FBT still applies where:
  • the employer and employee are family members, and the flight reward is provided under a contract with the employer;
  • the flight reward was specifically a business expenditure of the employer; or
  • the flight reward is in return for the employee rendering a service.
Example: Frequent flyer program

X Co is an airline. Y is one of X Co’s employees.

X Co runs a frequent flyer program, under which anyone can apply to become a member and pay an annual fee of $150. Under the frequent flyer program, consumers who spend $10,000 or more per year on airline tickets will receive a choice of free flights worth about $500 to $1,500.

Y joins X Co’s frequent flyer program. He applies to become a member and pays the annual fee. He spends $12,000 on airline tickets in 2011/12 and thus receives a free flight worth $1,300. The ticket is subject to stand-by restrictions applicable to X Co employees.

In this case, the ticket is not a fringe benefit. The ticket is provided to Y as a consumer who has entered a private contract with X Co. The fact that the ticket is subject to stand-by restrictions does not affect matters.

The situation may be different if the flight reward program was specifically to reward Y’s services.


If you have concerns about FBT and airline transport fringe benefits, call LAC Lawyers and we can provide advice and assistance.