LOYALTY AND OTHER POINTS PROGRAMS
Loyalty programs, such as frequent flyer miles, hotel rewards, or credit card points, are commonly used in both personal and business contexts. The Canada Revenue Agency (CRA) has outlined guidelines to determine when benefits from these programs are considered taxable. The tax implications depend on how the points are earned, managed, and redeemed.
Tax Implications of Loyalty Points
- Employer-Controlled Programs: If the loyalty points are accumulated through a program managed by the employer and redeemed for personal use, the fair market value (FMV) of the rewards is typically treated as a taxable benefit. This benefit must be reported as employment income.
- Employee-Controlled Programs: When employees accumulate loyalty points through personal credit cards or accounts while incurring business expenses, the CRA considers the following:
- Non-Taxable Situations: Points are non-taxable if they are not converted into cash, the program is not an alternative form of remuneration, and there is no intent to avoid taxes.
- Taxable Situations: If the program is used as an alternative to remuneration or designed for tax avoidance, the FMV of the redeemed points must be included in the employee's taxable income.
Employer Responsibilities
- Reporting Taxable Benefits: Employers must report any taxable benefit arising from loyalty points on the employee's T4 slip under code 40 ("Other taxable allowances and benefits").
- Payroll Deductions: Employers are required to withhold income tax and Canada Pension Plan (CPP) contributions on the taxable benefit value. However, Employment Insurance (EI) premiums are generally not applicable.
Employee Considerations
- Personal Use of Points: Employees should be mindful that redeeming loyalty points for personal use, especially when accumulated through business expenses, may result in taxable benefits.
- Record-Keeping: Employees are encouraged to maintain detailed records of how points were earned and redeemed to accurately determine any tax obligations.
CRA Guidance
The CRA has clarified that travel reward points redeemed for business travel are not taxable if the employer directly reimburses or pays for the travel expenses, provided the reimbursement does not exceed the fair market value of the travel costs. However, if the points are used for personal purposes or exceed fair market value, the benefit may become taxable.
Examples of Non-Taxable Benefits
- Points accumulated through a personal credit card for legitimate business expenses where the points are not redeemed for cash.
- Points redeemed for business-related travel expenses that do not exceed the fair market value of the travel cost.
Additional Resources
