Are Credit Card Rewards Taxable in Canada?

Credit card rewards earned from normal personal spending are generally not treated as taxable income in Canada.

However, tax rules can become more complicated when rewards come from business expenses, employer paid purchases or points that are converted into cash.

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Are Personal Credit Card Rewards Taxable?

Generally, rewards you earn through ordinary personal purchases do not need to be reported as income.

This can include rewards such as:

• Travel points
• Merchandise rewards
• Loyalty points
• Statement credits
• Purchase-related cash back

CRA guidance on loyalty programs generally does not require individuals to report non-cash rewards earned and controlled through their personal cards when the arrangement is not connected to compensation or tax avoidance.

What If You Earn Rewards on Work Expenses?

The rules depend on who controls the rewards and how they are earned.

If you use your personal credit card for normal employment related expenses and your employer reimburses you, CRA generally does not treat non-cash points you personally control as a taxable employment benefit, provided:

• Your employer does not control the points
• The points are not converted to cash
• The arrangement is not an alternative form of compensation
• The arrangement is not designed for tax avoidance

When Can Employee Rewards Become Taxable?

Rewards can become taxable if the arrangement effectively provides additional compensation.

For example, CRA gives the example of an employee being encouraged to put large amounts of company spending on their personal card specifically to maximize personal rewards. In that situation, the rewards used personally may have to be reported based on their fair market value.

Rewards controlled by an employer can also create a taxable benefit if the employee redeems them for personal use.

What If You Convert Points Into Cash?

This is an important exception.

CRA states that when employment related loyalty points are converted directly into cash, the employee may need to report the cash amount on their personal income tax return.

This differs from redeeming ordinary personal points for travel or merchandise.

What About Rewards Earned on Business Purchases?

Business rewards require more care.

If a rebate or incentive relates directly to a deductible business expense, it may reduce the amount of the expense you can claim rather than simply giving you tax-free extra money.

CRA generally requires rebates, grants or assistance related to a business expense to be subtracted from that expense when calculating the deductible amount.

Other incentives received through business activity can also be taxable business income depending on how they are structured.

Are Travel Points Taxable?

Usually not when they come from ordinary personal spending.

For example, if you earn airline points on your personal card and redeem them for a flight, you generally do not report the value of that flight as income.

Different treatment can apply if the points came primarily from an employment arrangement that effectively provided additional compensation.

Do You Need to Report Credit Card Cash Back?

Cash back earned from ordinary personal purchases is generally treated differently from employment income.

The more important tax concern arises when cash rewards are tied to reimbursed employment expenses or business spending.

If rewards are earned through your business, it is worth keeping records showing:

• How the rewards were earned
• Whether purchases were personal or business-related
• How the rewards were redeemed
• Whether the rewards reduced a business expense

When Should You Ask an Accountant?

Professional advice can be useful if:

• Your business earns large amounts of rewards
• You regularly put employer expenses on your personal card
• You convert business-related points into cash
• Employees personally redeem rewards from company cards
• You are unsure whether rewards reduce a deductible expense

For most Canadians earning points or cash back from everyday personal purchases, however, credit card rewards generally do not create additional taxable income.