Are Canadian Credit Card Rewards Taxable?

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Last updated on September 18, 2021 Comments: 13

Come tax season, your credit card rewards may introduce another layer of complexity to your return. In most cases, the average Canadian doesn’t have to pay taxes on their credit card points, miles or cash back earned. However, if you use a business credit card, that’s when things get complicated.

Why Aren’t Most Credit Card Rewards Considered Taxable Benefits?

The CRA treats most credit card rewards as a discount—not an income—and  therefore they are not taxable. Just like you’re not taxed the money you save using coupons or store discounts, you’re also not taxed on the incentives your credit card company provides to encourage you to use its card, such as points or miles. It’s also hard for the CRA and consumers to value rewards because they’re issued as a proprietary currency. For example, what’s the market value of 25,000 Aeroplan points? It depends on which flight you redeem your points for, when you redeem, and which ticket class you purchase.

Furthermore, you would have to know the value of all your alternatives to learn the true market value of the ticket if you were to book the flight through cash – an impractical task.

As a result, the CRA doesn’t require consumers, retailers or banks to report rewards earned from credit card spending or from credit card welcome bonuses.

How are Credit Card Rewards From Business Expenses Taxed If You’re an Employee?

The CRA gets a little more finicky when it comes to earning credit card rewards from work-related expenditures. You’re allowed to collect frequent flyer miles if you book a business trip on your personal credit card, even if your employer reimburses you for the total. So, if you earned 1000 Aeroplan points from making work-related purchases on your Aeroplan-branded personal credit card, you wouldn’t have to pay taxes on them. The CRA is very clear in stating that the employee does “not have to include in their income the value of the rewards they received or enjoyed from the points they collect on these business trips.” However, there are several cases where an employee would have to pay taxes on their earned credit card rewards:

  • If an employee converts the points to cash. Again, this is only for individuals who earned their points by using their credit cards for business expenses and were subsequently reimbursed for those expenses by their company. If you redeem your rewards as points, miles, or cash back you do not have to report them as a taxable benefit. If you convert your points to cash, as you can with some programs, then you would have to declare the cash value of the points on your returns. The bottom line: Keep your points in their original form.
  • Your employer is giving you points as an alternative form of remuneration. Your employer can’t simply award you 100,000 miles every year as part of your annual bonus. Nor can they allow you to pay for other employee’s expenses, such as flights and hotels, with your personal credit card in order to let you collect the rewards, even though they reimburse you. This would also be considered a form of remuneration. The bottom line: Don’t accept credit card rewards or points as part of your compensation from your employer.
  • The plan or arrangement is a form of tax avoidance. This is a catch-all rule, whereby the CRA is giving itself the ability to rule against tax avoidance schemes it hasn’t conceived of but breach the spirit of the law. The bottom line: Make sure that all sources of income get reported on your taxes.

If you meet any of the above conditions, you will have to declare the fair market value of any personal rewards you received on your income tax return.

How are Credit Card Rewards on Business Expenses Taxed if You Own the Company?

But what if you own the company and you use your business card to earn the rewards points? According to the CRA, the rule is that if the company controls the points (i.e., you earns points from your own business credit card), it cannot give those rewards to an employee for personal use, without those points becoming a taxable benefit.

So, if an owner-operator uses the company’s business credit card (instead of their personal credit card) to book their business travel, they would not be able to redeem the company’s rewards for personal use without creating a taxable benefit, because they would be receiving the rewards as an employee. It’s better for the business owner to use those points for business trips instead of personal vacations if they want to avoid paying the extra taxes.

Do I Need to Pay Taxes on My Credit Card Points or Not?

In the end, consumers are clear to collect and use as many rewards as they can without having to worry about paying taxes on the market value of their points. The only complication comes when you collect rewards from business expenses. It’s up to you (and your accountant) whether you think you need to report credit card rewards income on your taxes, but it’s always better to err on the side of caution when it comes to the CRA.

Author Bio

GreedyRates is Canada’s go-to resource for all things personal finance. Our expert articles and videos cover every topic under the financial sun, including credit cards, credit scores, loans, bank accounts, budgeting, investing, RSPs, TFSAs, GICs, taxes, and more. Want our advice on a personal finance issue? Send us an email at [email protected] and we’ll gladly give you some free tips.

Article comments

13 comments
Kate says:

We use our personal Credit card for Business which has a cash back reward system. Our company is insisting that the rewards are taxable and that as a business they would be held responsible with CRA if we do not claim the cashback without paying taxes. From the article I feel that they are not correct, or am I reading it wrong.

Daniel from GreedyRates says:

Hi Kate,
Whether you’re using a personal credit card for business purposes or are the business owner yourself, your best will be to contact the CRA for the official verdict. Call 1-800-959-9291 for questions about your personal income tax file Mon-Fri (8 AM – 8 PM) or Sat (9-5). The CRA contact site will even give you an estimated wait time you’ll wait in queue. Just scroll down and expand ‘Step 2. Find the number you need to call.’ Hope you get the outcome you’re looking for.

S Wilson says:

Hi I have a business credit card that has been accumulating points for many years. My question is this if I redeem points to acquire business products used by employees what would I need to do to claim the reward aspect? Eg. instead of purchasing a much needed replacement computer for an employee I redeem points to acquire it.

Daniel from GreedyRates says:

Hi S,
Credit card reward programs will often provide you the option to redeem points for merchandise via a website portal. You rate of return for points redemption on items like a replacement computer will vary from rewards card to rewards card. It’s an interesting idea- hope that works out!

Nick says:

Hi there, my bank allows me to redeem points for cash as an investment. Wondering what happens if I move my redeemed points to an RRSP. Do I get to take this money off my total income? What about if I used my RRSPs through the First Time Home Buyers plan, does this money go towards paying back the FHBP?
Thanks!

Daniel from GreedyRates says:

Hi Nick,
Conceivably, if you redeemed your points for cash into an RRSP it would count as a contribution that could go towards a tax deduction. As for the First Time Home Buyer’s Plan, you’ll have to designate all or part of the contribution as a repayment. Find out How to repay funds withdrawn from RRSP(s) under the Home Buyers’ Plan (HBP) for more details. Either way, best to check with your financial institution for their definitive take on your options and obligations.

Solemnas says:

Thank you for the article. What GIFI code would we use to report the cc reward if it is not income?

Aaron Broverman says:

Hi Solemnas, credit card rewards/points are non-taxable until they become income either as a statement credit (reduction of expense) cheque, cash back (reduction of expense) or form of direct remuneration in lieu of payment. Therefore, you don’t have to record your points or rewards until they are redeemed and applied (when it will become income). For the specific GIFI, contact the CRA.

Joyce says:

Hi, what if you’re self employed as a sole proprietor? How would this apply? And would it be the same for cash back programs like Rakuten.ca (ebates)? This program doesn’t give points, but sends funds for purchases you make.

Also let’s say you use aeoroplan points to redeem gift cards. They’re not exactly cash. But they have dollar values. How would those be handled in a sole proprietorship? Versus an incorporated business?

Aaron Broverman says:

Hi Joyce,
The CRA rules would apply in the same way for sole-proprietorships. However, the chances of your boss giving you air miles or rewards points as a form of remuneration are highly remote when you are a contractor. The chances of this scenario happening for employees is rare and for those who are self-employed, it is even rarer. However, if the scenarios do happen to you, follow the instructions as laid out in the article and treat the points as taxable income in those specific circumstances. Gift card monetary value, especially when used as a form of payment, should be noted and discussed with your accountant and/or tax preparer. In most cases, it could probably be considered a gift unless it was explicitly given as part of or in lieu of monetary payment. In those cases, threat it as taxable income as the article instructs by adding the value to your income for the year.

Dave says:

This is an interesting article, can you do a article for business owners that use a business credit card to earn points/cash back. From this article it is clear that if the points go to the employee it’s a taxable benefit but what if the business uses the points for business expenses or purchases? Is it taxable to the business?

The GreedyRates Team says:

Hey Dave,

Thanks for the suggestion. The situation can get complicated quickly when using rewards that are earned from business expenses, but from what we understand, as long as the rewards stay in their original form (e.g. redeemed as-is for the intended purposes such as cash back against a balance or miles for airfare) then they aren’t taxable. The minute that rewards are redeemed for cash is when tax rules start to get complex, and we’d imagine that physical purchases such as office supplies would need to be declared using a different designation. However, this also depends on the way your company is incorporated and its tax status, so it’s worth consulting with a tax professional to straighten the matter out. We’ll dig into it and get back to you if we find any clues.

GreedyRates

Melania Pantilin says:

Hello,
Same situation as Dave. I would like to know about redeemed points on business credit card if they are considered an income? Our accountant entry the redeemed points as “other income”. It is correct that?
Thank you!

Melania