This article provides general clarification on how to set up loyalty programs in POS systems that link with Xero i.e. Vend and Kounta.
For specific details about how the Loyalty features work in these apps please refer to the individual help documentation for the app.
Vend Loyalty - Included Feature
Kounta - Refer to add-on loyalty apps
Chart of Accounts
Two accounts are required in Xero as follows:
- Loyalty Liability - The value of the points will be accrue here at the time the customer receives points i.e. at the time of making a purchase. This keeps a running tally of the value of any unredeemed points.
- Loyalty Expense - The value of the goods redeemed when a customer uses points to pay will be expensed here. This expense is effectively a marketing expense. Some may prefer this to be put to a Marketing Account. In any case it can be combined in reporting.
In nearly all cases these accounts should have a GST Code of BAS Excluded in Xero. See below on ATO position on GST and loyalty programs.
Where a loyalty program has the characteristics below AND there is no consideration for the redemption of points (when a customer uses points to purchase a product) other than the points themselves no GST will apply. This includes both at the time the points accrue to the customer and at the time of redemption.
- the loyalty program operator provides a member with loyalty points as a consequence of the member purchasing eligible goods or services or using a credit card to make such a purchase;
- the price paid by a member for making eligible purchases is the same as for a non member (that is they do not pay anything extra for the loyalty points);
- the loyalty points cannot be transferred for money;
- the loyalty points cannot be redeemed for money;
- to the extent that points may notionally have a value for program members, the value of points earned in making eligible purchases is low compared to the price of the goods or services themselves (that is the value would be less than 10% of that of the goods or services);
- there is a record keeping mechanism in place that allows the loyalty program operator, member or both, to track how many loyalty points have accrued; and
- the points may be redeemed at some time for a reward, being goods or services or a right to receive goods or services. The actual reward depends on the number of points accrued and redeemed by the member. Accordingly, the greater the number of points redeemed, the more valuable the reward to the member is likely to be.
Other features of some arrangements include:
- the expiry of points after a period of time; and
- the ability of members to make an additional payment to obtain a reward where they have insufficient points (sometimes known as points plus pay).
For further reading and examples see ATO GST Ruling GSTR 2012/1