Credit cards provide a wide range of benefits if used responsibly. These include easy access to credit during emergencies, universal acceptance, protection against fraud, and the ability to build a credit profile.
Many credit cards also offer rewards programs, which you can redeem to save you money on various items. But is cashback taxable? Do you have to declare these rewards as income when you file your taxes?
Key Points You Should Know
- Credit card rewards such as travel miles, and cashback, are not taxable.
- However, business credit card rewards are taxable depending on whether the points are used for personal versus business use.
- Credit card rewards that are converted to cash or used as remuneration for employees may be taxable.
- Credit card rewards that are not redeemed for cash or are used for business-related expenses are generally not taxable.
Are Credit Card Rewards Taxable?
In general, credit card rewards, which include points, travel miles, and cashback, are not taxable, both at the individual and business level. The Canada Revenue Agency (CRA) considers these types of benefits as discounts, not as forms of income, so you’re not required to report them when filing your taxes.
It would also be impractical for the CRA to assess the taxes payable on credit card rewards, as determining their fair market value in Canadian dollars is difficult. For example, a credit card may give you the option to redeem Aeroplan points or Air Miles for various items, all of which vary considerably in their value. The same concept applies to other monetary gifts, like lottery winnings, birthday gifts, and prize draws – all of these aren’t taxable.
Business Credit Cards: Can Credit Card Rewards Be Taxed?
You don’t have to worry about tax reporting requirements for rewards earned on your personal credit cards.
However, credit card rewards may be subject to taxation when it comes to business credit cards. Specific provisions in the tax code deem such rewards to be taxable benefits. These rules pertain to individuals who collect credit card rewards as a function of their employment.
As an employee, you’re taxed on your credit card rewards in the following scenarios:
You Convert Your Rewards To Cash
If you convert your rewards into cash, this triggers a tax liability. You must report the cash value on your tax return. This rule only applies to rewards earned through work-related expenditures that your employer reimburses.
If you redeem your rewards for points, miles, or cash back, then you don’t have to report them to the CRA. Ensure you keep detailed records of your transactions to verify your rewards’ cash value during tax season.
Your Rewards Are Provided To You As A Form Of Remuneration
In some cases, your employer may give you credit card rewards as additional compensation. The CRA considers this form of payment a taxable benefit, so if you’re the recipient of such rewards, be prepared to declare them on your tax return.
In essence, if your status as an employee directly enables you to earn rewards above and beyond what you could make as an individual, the CRA likely views them as a taxable benefit.
Your Company Credit Card Has A Rewards Program
Suppose your employer has a company credit card that offers a loyalty program where points can be earned on purchases, and you use this card for business-related expenditures. In this case, the fair market value of the rewards you eventually redeem the points for may have to be reported to the CRA. Since your employer owns the card and controls the tracking, collection, and redemption of points, the CRA deems your rewards to be a taxable benefit.
It’s important to understand that this situation applies when the rewards are given out for employees to use, and are not used by employers to offset business expenses. In this scenario, the rewards may be considered a type of employee compensation and would then be considered taxable. However, if the rewards points from a business credit card are used towards business expenses, such as business travel, then the credit card rewards are not taxable.
Your Rewards Constitute A Form Of Tax Avoidance
This is a broad category that encompasses all the possible ways individuals can minimize or eliminate their tax liability. Though most forms of tax avoidance are legal, the CRA does not condone certain tactics. Sophisticated and artful plans involving employment-related credit card rewards may be classified as tax avoidance by the CRA.
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You must include any taxable credit card rewards you earn as part of your regular employment income for tax purposes. Your employer will add the fair market value of the rewards to Box 14 on your T4 slip, which includes all your other employment remuneration. The amount will also appear in Box 40 of your T4 slip, separate from the rest of your income.
How Much Will You Pay In Taxes On Taxable Credit Card Rewards?
The amount of tax you’ll pay on your rewards will depend on how much you earn and which income tax bracket you fall into, both at the federal and provincial levels. While federal income tax brackets are uniform across all provinces, provincial tax brackets vary slightly.
To illustrate how much you might pay in income taxes on your taxable credit card rewards, let’s use different annual salaries and rewards reported for an employee from Ontario:
| Income | Rewards | Tax Rate | Taxes Owed On Rewards |
| $40,000 | $1,000 | 20.05% | $200.50 |
| $65,000 | $1,500 | 29.65% | $444.75 |
| $100,000 | $2,000 | 33.89% | $677.80 |
Final Thoughts
Since the CRA views credit card rewards as discounts instead of income, then they’re not taxable. However, things get a little hazy when rewards are earned or redeemed through the course of your work. If your rewards stem from using a company business card or your employer provides you rewards as an alternative form of compensation, these transactions may be considered taxable benefits. If you’re unsure about the tax consequences, consult with a qualified tax professional.
