Taxation Ruling

IT 2041

Income : travel bonds

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FOI status:

May be releasedFOI number: I 1104352

FACTS

A number of building societies throughout Australia are now offering a scheme of investment known as Travel Bonds. There has been some publicity in recent times in relation to the income tax liability of benefits provided under the scheme.

2. Advertising material for the Travel Bond scheme indicates that it is designed to attract deposits ranging from $3,000 to $100,000 for a term of 12 months. Investors receive on deposit a term account certificate recording the amount of the investment, rate of interest payable on maturity and the term of the investment. The rate of interest is presently 3.75% pa.

3. Investors also receive a travel award certificate the value of which varies according to the amount of the investment. The travel award may be redeemed at TAA offices in return for travel and accommodation to the appropriate value or for a lesser value. No refund or adjustment is made if travel of a lesser value is chosen. Travel award certificates are issued only for the use of the investor and family or, in the case of a company, an employee. The certificates are not otherwise transferable and cannot be redeemed for cash.

RULING

4. The interest of 3.75% pa derived by an investor is clearly assessable income. The value of a travel award certificate is also considered to constitute assessable income of the investor.

5. Section 25(1) of the Income Tax Assessment Act provides that all income derived by a taxpayer, other than exempt income, shall be liable to income tax. Returns on invested capital are generally accepted as receipts of income notwithstanding the particular form which the particular return may take, e.g. discounts on interest free or low interest bearing securities. The value of a travel award certificate is part of the investor's return on his capital.

6. It is not necessary that income be received in cash. The reasons for the decision of the Federal Court in FC of T v Cooke & Sherden, 80 ATC 4140, 10 ATR 696, make it clear that, if an investor receives a benefit from his investment which can be turned into pecuniary account or which can be employed in the acquisition of some other right or commodity, the receipt of that benefit constitutes a receipt of income. In the case of the Travel Bonds scheme the benefit, i.e. the travel award certificates, can be turned into moneys worth in as much as they can be redeemed at TAA in exchange for travel and accommodation of varying but nontheless readily quantifiable value.

7. Investors would be required to return as assessable income in the year of receipt, i.e. in the year of redemption of travel award certificates, the value of the travel and accommodation represented by the particular travel award certificate.

8. There may be situations in which an investor does not take up his full entitlement to travel under the travel award certificate, i.e. he may take travel of a lesser value. In these circumstances the lesser value should be included in assessable income. Other situations may arise where the investor, for one reason or another, forfeits his right to any travel. In these situations no amount should be included in the assessable income of the investor.

COMMISSIONER OF TAXATION
2 June 1983

References

ATO references:
NO J 35/702 F284

Subject References:
INCOME
TRAVEL BONDS

Legislative References:
25(1)

Case References:
FC of T v Cooke & Sherden
80 ATC 4140
10 ATR 696