May 27, 2005

VIA EDGAR
Mr. Mark P. Shuman
Ms. Sara Kalin
United States Securities and Exchange Commission
Division of Corporation Finance
450 Fifth Street, N.W.
Washington, DC 20549

Re: Catuity, Inc.
Preliminary Proxy Statement on Schedule 14A
Filed May 12, 2005
File No. 0-30045

Dear Mr. Shuman and Ms. Kalin:

On behalf of Catuity, Inc., a Delaware corporation (the "Company"),
this letter sets forth the Company's responses to the comments of the Staff of
the Division of Corporation Finance (the "Staff") contained in your letter dated
May 24, 2005 to Mr. John H. Lowry, Chief Financial Officer and Secretary of the
Company. For reference, each Staff comment is reprinted below in italics,
followed by the corresponding response of the Company.

1. Please disclose whether you have any current plans, proposals or
arrangements regarding the options to be authorized under your new restricted
stock plans or the additional options authorized under your existing stock
option plans. For example, have you agreed to issue options or restricted shares
to any specific individuals? If so, please disclose and if not, please revise
the disclosure regarding each applicable proposal to indicate that you have no
such plans at this time.

RESPONSE: The Company has added disclosure regarding any current plans,
proposals or arrangements for the proposed options or restricted stock in
proposals 9, 11, 14, and 15. For your convenience, a copy of each of the changed
pages of the proxy statement containing the additional disclosure is included
with this letter.

2. While we note the disclosure you have provided in your "Risk
Factors" section regarding the dilutive effect of the acquisition on the current
shareholders, please expand your disclosure regarding Proposal 6 to more clearly
indicate how the ownership of the Company will change following the acquisition.
For example, it appears there would be a material change to the Company's
beneficial ownership following the acquisition. Consider including a beneficial
ownership table in this section to present both pre- and post-acquisition
information.

RESPONSE: The Company will add a beneficial ownership table that
presents both pre- and post-acquisition information following the discussion of
the Share Sale Agreement in the Proxy

Mr. Mark P. Shuman
Ms. Sara Kalin
May 27, 2005
Page 2

Statement. For your convenience, a copy of the changed pages with the pre and
post acquisition beneficial ownership table are included with this letter.

* * *

The Company acknowledges that (a) the Company is responsible for the
adequacy and accuracy of the disclosure in its filings; (b) Staff comments or
changes to disclosure in response to Staff comments in the filings reviewed by
the Staff do not foreclose the Commission from taking any action with respect to
the Company's filings; and (c) the Company may not assert Staff comments as a
defense in any proceeding initiated by the Commission or any person under the
federal securities laws of the United States.

I will be out of the office until Thursday, June 2, 2005. In my
absence, if you have any questions or require additional information, please
feel free to contact Lee Kellert with Jaffe, Raitt, Heuer, & Weiss, the
Company's legal counsel at (248) 727-1413.

Sincerely,
CATUITY, INC.

/s/ John H. Lowry

cc: Alfred H. (John) Racine, III

Disputed claims for indemnification are subject to mediation. If mediation
fails, the dispute may be submitted to court in Victoria, Australia, unless
Majority Shareholders unanimously agree to have the claim arbitrated.

FEES AND EXPENSES

Catuity will bear all stamp duty payable in connection with the Share Sale
Agreement. Subject to the stamp duty, the parties will each bear their own
legal, accounting and other costs and expenses in connection with the
preparation and execution of the Share Sale Agreement and the transactions
contemplated under this Share Sale Agreement.

AMENDMENTS AND WAIVERS

The Share Sale Agreement may not be amended or modified unless the
amendment or variation is in writing signed by all parties. Waiver of any power
or right under the Share Sale Agreement must be in writing signed by the party
entitled to the benefit of that power or right and is effective only to the
extent set out in that written waiver.

DESCRIPTION OF OTHER MATERIAL AGREEMENTS

EMPLOYMENT AGREEMENT WITH CHRIS LEACH

As a condition precedent to Loyalty Magic's obligation to consummate the
acquisition, we are required to enter into an employment agreement with Chris
Leach, the current managing director of Loyalty Magic. We are currently
negotiating the terms of the employment agreement with Mr. Leach. We have
reached general agreement on the term of the contract, the responsibilities of
Mr. Leach and a general framework for his compensation, including performance
based incentives. We expect to finalize Mr. Leach's employment agreement prior
to the date of our 2005 Annual Meeting of Shareholders.

BENEFICIAL OWNERSHIP PRE- AND POST-ACQUISITION OF LOYALTY MAGIC

The following table provides certain information regarding the
beneficial ownership of our capital stock prior to and following completion of
the acquisition of Loyalty Magic by (i) each person known by us to beneficially
own or who is expected to own more than five percent of our common stock; (ii)
our Chief Executive Officer and the four most highly compensated executive
officers that earned more than US$100,000 (salary and bonus) for all services
rendered in all capacities to us during the year ended December 31, 2004
(including our former Chief Executive Officer, Michael Howe); (iii) each of our
Directors; (iv) all of our Directors and executive officers as a group; and (v)
all of the current shareholders of Loyalty Magic as a group.

The post acquisition information included in the table below assumes a
per share price of A$5.00, the closing price on the Australian Stock Exchange on
May 25, 2005.

<Table>
<Caption>
Prior to Acquisition Following Acquisition

Percent Percent
Name and Address of Amount and Nature of Common Owned Amount and Nature of Common Owned
Beneficial Owner Stock Beneficially Owned(1) (2) Stock Beneficially Owned(1) (2)(3)
- -------------------------------- -------------------------------- ------------ ---------------------------------- ------------

Acorn Capital Limited
Level 12, 90 Collins Street
Melbourne Vic 3000 Australia 108,846 Direct 108,846 Direct
0 Vested Options 14.0% 0 Vested Options 9.4%

Duncan P.F Mount
Lot 8, 54 Lane Cove Road
Ingleside, NSW 2101 Australia 46,666 Direct 46,666 Direct
2,167 Vested Options 6.3% 2,167 Vested Options 4.2%

Alfred H. (John) Racine
11 Altamont Circle, #51 0 Direct 0 Direct
Charlottesville, VA. 22902 50,644 Options (4) 6.5% 50,644 Options (4) 4.4%

Michael Howe
62 Hampton Road 3,450 Direct 3,450 Direct
Grosse Pointe Shores, MI. 48230 21,267 Vested Options 3.1% 21,267 Vested Options 2.1%

Alexander S. Dawson
38 Macleay Street, NSW 2011 15,000 Direct 15,000 Direct
Australia 2,000 Vested Options 2.2% 2,000 Vested Options 1.5%

John H. Lowry
21972 Heatheridge 422 Direct 422 Direct
Northville, MI. 48167 8,333 Vested Options 1.1% 8,333 Vested Options *

Alan L. Gilman
4720 Morris Lake Circle West 267 Direct 267 Direct
Bloomfield, MI. 48223 2,000 Vested Options * 2,000 Vested Options *

Clifford W. Chapman
10 Warren Ave. 0 Direct 0 Direct
Spring Lake, NJ 07762 667 Vested Options * 667 Vested Options *

A&B Venture Fund Company Pty.
Ltd.
16-18 Bulletin Place, 0 Direct 304,992 Direct
Sydney, NSW 2000 Australia 0 Vested Options 0% 0 Vested Options 26.3%

All Catuity Directors and
Executive Officers as a group 62,355 Direct 62,355 Direct
(6 persons) 65,811 Vested Options 15.2% 65,811 Vested Options 11.1%

All current Loyalty Magic
shareholders as a group (12 0 Direct 380,000 Direct
persons) 0 Vested Options 0% 0 Vested Options 32.8%
</Table>

(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of common stock
subject to options, warrants or other rights to purchase which are
currently exercisable or are exercisable within 60 days after March 31,
2005 are deemed vested and outstanding for purposes of computing the
percentage ownership of any other person. Except as indicated by
footnotes and subject to community property laws, where applicable, the
persons named above have sole voting and investment power with respect
to all shares of Common Stock shown as beneficially owned by them.
Share data does not include any Shares the beneficial ownership of
which has been disclaimed pursuant to SEC Rules.

(2) Percentage of Beneficial Ownership is calculated on the basis of the
amount of outstanding securities plus those securities of the named
person deemed to be outstanding under Rule 13d-3 (promulgated under the
Securities and Exchange Act of 1934, as amended) by virtue of such
securities being subject to rights to acquire beneficial ownership
within 60 days after March 31, 2005. An asterisk indicates beneficial
ownership of less than 1% of the common stock outstanding.

(3) Does not include the shares to be issued in our Australian registered
offering.

(4) Does not include options to purchase 77,914 shares of our common stock,
which are subject to shareholder approval pursuant to Proposal 10 of
this proxy statement.

BUSINESS OF CATUITY

OUR BUSINESS

Catuity provides technology-based solutions to retailers that are designed
to increase the profit they receive from their customers at the Point of Sale
(POS). Today, the Company sells a hosted, ASP-based system(1) that enables the
processing of member-based loyalty programs and which can deliver customized
discounts, promotions, rewards and points-based programs which are designed to
help retailers find, keep and profit from their best customers. The Company also
enables gift card solutions. In late 2004, the Company introduced the first
version of its new platform, the Catuity Advanced Loyalty System (CALS). The
system enables robust and highly customizable programs which work on a
retailer's payments terminals, Electronic Cash Register and on their internal
store networks. Catuity also offers IT services to retailers to support their
POS systems maintenance and custom development needs for both the deployment of
our technology solution and those of third parties which also touch the point of
sale.

In 2004, Catuity underwent a significant change in its business strategy
following the decision of Target Corporation to stop issuing smart cards to its
customers that hold their Target-Visa co-branded credit card. This resulted in
the eventual shutdown of the Visa Smart Rewards Platform that Visa USA had been
developing for smart card usage in the United States and which utilized
Catuity's older smart loyalty software. This has significantly impacted the
near-term use of smart cards in the United States and resulted in Catuity
adopting a change in its business strategy. In 2004, Visa represented 75% of
Catuity's revenue while Target represented 11%. That revenue ended in the third
quarter of 2004. The Company has no expectation that either Visa USA or Target
will be a significant customer going forward.

- -------------------------
(1) An Application Service Provider is a third-party entity that manages and
distributes software-based services and solutions to customers across a wide
area network from a central data center.

PROPOSAL 9

(TO APPROVE AN INCREASE IN THE NUMBER OF SHARES AUTHORIZED UNDER THE EMPLOYEE
STOCK OPTION PLAN)

GENERAL

The ninth matter to be considered at the Annual Meeting will be the
approval of an amendment to the Catuity Inc. Stock Option Plan (the "Employee
Plan") to increase the number of shares for which options and other awards may
be granted from 63,333 shares to 300,000 shares.

The Board of Directors initially adopted the employee plan in December
1999 and the stockholders approved it on March 16, 2000. The employee plan was
amended in 2001 to increase the number of authorized option shares to its
current level. The employee plan terminates on the earlier of (i) the tenth
anniversary of its effective date, (ii) the date all of the shares authorized
under the employee plan have been issued, or (ii) the termination of the
employee plan by the Board of Directors. The maximum period during which an
option may be exercised under the employee plan is 10 years from the date of
grant, except in the case of an Incentive Stock Option (ISO) granted to a 10%
stockholder, in which case the maximum period is five years from the date of
grant.

The purposes of the employee plan are to attract and retain employees of
high ability and to motivate them to advance Catuity's and our stockholders'
interests. As of April 15, 2005, there remain only 17,824 shares available under
the plan for future awards to employees. However, 77,914 shares have been
awarded to Alfred H. (John) Racine, III subject to shareholder approval. As a
result, we need to increase the number of authorized shares under the plan in
order to honor the agreement with Mr. Racine and be able to make future option
award grants to eligible employees. With the pending acquisition of Loyalty
Magic, the number of employees eligible under the Plan will increase to
approximately 40. The proposed increase will allow the Company to award option
grants to the larger number of employees that will be eligible under the Plan.
Catuity's total number of shares outstanding will also increase substantially
with the acquisition of Loyalty Magic.

On March 22, 2005, the Board approved an amendment increasing the number
of authorized shares from 63,333 to 300,000 in order to ensure that a sufficient
number of shares would be available for grants to meet the overall goals and
objectives of the employee plan for the next few years. With the exception of
77,914 option shares to be awarded to Alfred H. (John) Racine that are subject
to shareholder approval pursuant to proposal 10 of this proxy statement and
14,500 option shares to be awarded to two new management level employees as an
inducement for them to join the Company, management has no other proposals or
arrangements for the use of the proposed authorized shares. The remaining
proposed authorized shares are intended for future employee awards.

SHARES AUTHORIZED

A maximum of 63,333 (as amended, 300,000) of the aggregate number of
shares of common stock outstanding may be issued under the employee plan to all
participants in the aggregate. The shares issued may be newly issued or
repurchased by us on the open market. If any award granted under the employee
plan is surrendered to us, terminates or expires before having been fully
exercised, or an award of stock appreciation rights is exercised for cash, then
all shares formerly subject to that award shall become available for any award
subsequently granted in accordance with the employee plan. The number of shares
authorized under the employee plan will be adjusted to reflect certain
recapitalizations, reorganizations, mergers or consolidations.

EMPLOYEE PLAN ADMINISTRATION

The employee plan is administered by the Board of Directors or by a
committee consisting of two or more members of the Board and is known as the
administrator. Currently, the Compensation Committee serves as administrator.
The administrator has full power and authority to prescribe, amend and rescind
rules and procedures governing administration of the employee plan and to make
all other determinations necessary or advisable for its administration and
interpretation.

EMPLOYEE PLAN PARTICIPANTS

The administrator may grant awards under the employee plan to Catuity's
and/or any of its subsidiaries' officers, employees, and persons who are
independent contractors, consultants or advisers of Catuity and/or its
subsidiaries at the time of the grant.

ELIGIBILITY

The Committee may grant Restricted Share Awards to any full-time, exempt
employee of the Company or its subsidiaries or to such other key employees as
the Committee may determine. As of April 15, 2005, the Company and its
subsidiaries had approximately 11 Eligible Employees eligible to receive Awards
under the Employee Stock Plan. The number of Eligible Employees is expected to
increase over time based upon the Company's future growth.

STOCK SUBJECT TO THE PLAN; LIMITATIONS ON AWARDS

The number of shares of Common Stock available for Restricted Share Awards
under the Employee Stock Plan will be 267,000, subject to adjustment as set
forth below. Shares of Common Stock to be granted under the Employee Stock Plan
will come from the Company's authorized but unissued shares. If a Restricted
Share Award is forfeited or terminated for any reason, the Restricted Shares
subject to such Award will be available for regranting under the Employee Stock
Plan.

RESTRICTED SHARE AWARDS

The Committee has authority to determine the number of Restricted Shares
subject to an Award as well as the terms and conditions applicable to such
Award, including the term of the Restriction Period, which is the time period
during which such shares are restricted, and any conditions relating to the
lapse of the Restriction Period, including the attainment of one or more
Performance or Serviced Goals, if any, set by the Committee. With the exception
of 8,000 performance based restricted shares to be awarded to two new management
level employees as an inducement for them to join the Company, management has no
other proposals or arrangements for use of the proposed authorized shares. The
remaining proposed authorized shares are intended for future employee awards.

TERMINATION OF EMPLOYMENT

If a Participant is terminated or voluntarily terminates his or her
employment with the Company (other than by reason of death, Total and Permanent
Disability or Retirement) prior to the expiration of the applicable Restriction
Period, then he or she forfeits all of his or her Restricted Shares. In the
event of a Change in Control, all Restricted Shares automatically vest in full.

TRANSFER RESTRICTIONS

A Participant may not sell, transfer, assign or otherwise transfer his or
her Restricted Shares during the Restriction Period. During the applicable
Restriction Period, the Company (or its transfer agent) will hold all stock
certificates representing Restricted Shares.

PARTICIPANT RIGHTS

During the Restriction Period, the Participant has the right to vote his
or her Restricted Shares until vested or forfeited. During the Restriction
Period, any dividends or other distributions with respect to Restricted Shares
will be held by the Company (or its transfer agent) pending vesting or
forfeiture.

ADJUSTMENTS

In the event of a merger, reorganization, consolidation, recapitalization,
stock dividend, stock split or other comparable change in the Company's
corporate structure affecting the Common Stock, the Committee may adjust the
number and class of stock to be issued under the Employee Stock Plan, the
individual Participant Award limit and the number and class of shares subject to
outstanding Restricted Share Awards to prevent dilution or enlargement of the
rights intended to be granted under the Employee Stock Plan.

AMENDMENT AND TERMINATION

The Board may amend or terminate the Employee Stock Plan at any time,
subject to applicable law and the vested rights of Participants. The Employee
Stock Plan will terminate on April 30, 2015, unless earlier terminated by the
Board of Directors or when all shares of Common Stock available have been
issued.

will receive a non-qualified stock option to acquire 2,500 shares. The exercise
price per share of any option will be the fair market value on the date of
grant. The Company has no other plans, proposals, or arrangements for use of the
proposed authorized shares.

EXERCISE OF OPTIONS

Options vest and are exercisable immediately on grant.

A director's right to exercise any option granted under the Director
Option Plan terminates at whichever of the following times first occurs: (i)
eight years from the date of grant; (ii) three months after he or she ceases to
be a director, except if the director retires from the Board when he or she
reaches 60 years of age or dies; and (iii) if a director dies, one year from the
date of death. If a director dies within the 90 day period following the date he
or she ceases to be a director, then the beneficiary may, until one year after
the director's death, exercise the option to the extent it would have been
exercisable if the director had exercised the option immediately prior to his or
her death.

A director must pay the purchase price of shares purchased upon the
exercise of an option in full and in cash at the time of exercise. However, the
Board may (but is not obligated to unless this is provided in the particular
option agreement) permit the director to make payment by delivery to us of such
other consideration as is permitted by the Board. Payment may also be made by
delivering a copy of irrevocable instructions to a broker to deliver promptly an
amount sufficient to pay the purchase price and, if required, the amount of any
tax withholding liability for which the director is liable.

RIGHTS AS A SHAREHOLDER

Until a director exercises his or her award and actually receives the
shares, he or she has no rights as a Catuity shareholder pursuant to any shares
of common stock that underlie the option.

AMENDMENT

We may amend the Director Option Plan at any time. However, an amendment
cannot modify the terms of an existing option unless the recipient agrees to the
change.

U.S. INCOME TAX CONSEQUENCES RELATING TO THE DIRECTOR OPTION PLAN

The following discussion of certain U.S. income tax considerations is a
summary for general purposes only. Because Catuity is a U.S. Corporation, based
in the U.S., we have restricted our tax discussion to United States tax law
considerations. The Director Option Plan is not qualified under Section 401(a)
of the Internal Revenue Code and is not subject to the Employee Retirement
Income Security Act of 1974.

GRANT OF OPTIONS

Ordinarily, the grant of an option will have no income tax consequences
for either the director or us. When a director exercises an option, he or she
will recognize ordinary income and we will be entitled to a deduction in an
amount equal to the excess of the fair market value of the common stock
purchased over the purchase price. We are required to withhold tax from the
director's income in that transaction. The director's tax "basis" of the common
stock received upon exercise will equal the sum of the exercise price plus the
amount included in the director's income. If the director pays the purchase
price with shares of common stock, he or she will not recognize additional gain
or loss by reason of that exchange, and the tax basis for an equal number of
shares of the common stock received will be equal to the tax basis for the
shares exchanged. Any additional shares received will have a basis equal to the
amount of ordinary income includible with respect to such purchase. The
subsequent sale or exchange of the common stock would generally give rise to
capital gain or loss.

WITHHOLDING OF TAX

Generally, we will be obligated to withhold, or secure payment in lieu of
withholding, taxes the director may owe resulting from the exercise of an
option. That amount will depend on many factors existing at the time the
director exercises an option, particularly IRS regulations then in effect. If
the director is paying the exercise price with shares of common stock, he or she
may elect to have us withhold shares of the common stock sufficient to meet

Restricted Share Award is forfeited or terminated for any reason, the Restricted
Shares subject to such Award will be available for re-granting under the
Director Stock Plan.

RESTRICTED SHARE AWARDS

Awards of restricted stock will be made on a quarterly basis beginning on
the last day of the third quarter of 2005 and will continue until such time as
the Company has achieved profitability and positive cash flow for two
consecutive quarters or until the number of shares authorized under the Director
Stock Plan have all been awarded. The number of shares to be awarded to each
non-employee director will be based on 50% of the director's otherwise cash
based compensation for the quarter and the fair market value of Catuity's common
stock on NASDAQ (U.S. directors) or ASX (Australian directors) on the last
trading day of each calendar quarter. The fair market value of each share is
defined as the closing price on the last trading day of the quarter. Any
director may elect to receive restricted shares for up to 100% of his/her
otherwise cash based compensation. The Company has no other plans, proposals, or
arrangements for use of the proposed authorized shares.

TRANSFER RESTRICTIONS

If a Participant leaves the Board by reason of death or Total and
Permanent Disability prior to the expiration of the applicable Restriction
Period, then vesting is immediate and full. If a Participant Retires, vesting
continues according to schedule - although the Award is subject to forfeiture
for Inimical Conduct. If a Participant is removed from the Board or is not
nominated to stand for re-election due to Cause, then he or she forfeits all of
his or her Restricted Shares. In the event of a Change in Control, all
Restricted Shares automatically vest in full.

PARTICIPANT RIGHTS

ADJUSTMENTS

In the event of a merger, reorganization, consolidation, recapitalization,
stock dividend, stock split or other comparable change in the Company's
corporate structure affecting the Common Stock, the Committee may adjust the
number and class of stock to be issued under the Director Stock Plan, the
individual Participant Award limit and the number and class of shares subject to
outstanding Restricted Share Awards to prevent dilution or enlargement of the
rights intended to be granted under the Director Stock Plan.

AMENDMENT AND TERMINATION

The Board may amend or terminate the Director Stock Plan at any time,
subject to applicable law and the vested rights of Participants. The Director
Stock Plan will terminate on May 31, 2015, unless earlier terminated by the
Board of Directors or when all shares of Common Stock available have been
issued.

TAX WITHHOLDING

The Company is entitled to deduct or withhold, or require a Participant to
remit to the Company, an amount sufficient to satisfy all taxes required by law
to be withheld with respect to the issue of Restricted Shares under the Director
Stock Plan or the lapse of the Restriction Period. The Company also has the
right to withhold Common Stock as to which the Restriction Period has lapsed and
which have a fair market value equal to a Participant's minimum tax withholding
liability.