My wallet is full of loyalty cards, mostly for cafés. I drink a lot of coffee, so if there’s a chance for a free one, I’m in. The café isn’t doing this out of kindness, of course – they want me to keep coming back to spend money with them.

Freebies like this aren’t an issue from a tax perspective, because they’re a private expense that doesn’t relate to my taxable income. 

However, some rebate schemes offer far more generous rewards than free coffee.

If you’re a tradie, you’ll know what I mean. Trade suppliers run schemes where spending enough can earn you generous perks ranging from free tools to overseas travel. 

I’ve even heard of a customer who scored an all-expenses-paid trip to an international sporting event – now that’s loyalty.

The problem is, freebies like these are taxable income, according to Inland Revenue.

At this point it’s important to clarify the difference between a taxable freebie and a discount. Getting a reduced price for your loyalty doesn’t have any tax consequences, it just reduces the deduction you claim.

But it’s a different story if you’re rewarded for your business expenditure in the form of something the business gives you, whether by way of cashback, voucher, gift card, physical goods or services. 

So what does this mean? 

Basically, the value of these gifts needs to be included in your tax return. This is fairly straightforward where you’re given a gift card or cashback – the face value should be included in your tax return.

It’s a little more complex when you’re given goods. Income includes anything that can be exchanged for money, so that free mountain bike is income equal to its second-hand value, whether you actually sell it or let it gather dust in the garage.

It’s important to know this isn’t just an academic issue. Inland Revenue are actively investigating and gathering information on this, including from trade suppliers, and will be contacting taxpayers they think have been omitting income.

If you’re unsure about your tax obligations in this area, please get in touch.

Alex Cull

Tax Partner, Greenhawk Chartered Accountants

0800 422 526 | [email protected] | greenhawk.co.nz