Loyalty rewards earned on business expenses are not taxable if the rewards accrue to the company and are used for corporate purposes. However, when employees earn rewards on business-related expenses that are reimbursed by their employer, use of the rewards could create tax consequences that many employees may not be aware of.
Prior to 2009, employees were required to self-report, on their personal tax returns, the value of benefits they received as a result of their participation in loyalty programs that accumulated from employment-related expenses. That policy was problematic, so last year the Canada Revenue Agency changed its position so that benefits are generally not taxable.
There there are still some situations in which such benefits might be taxable. If reward points are converted into cash, the amount received will be taxable. Employers cannot use loyalty rewards as a disguised form of remuneration, as this could be viewed as a means of tax avoidance. Here’s an extreme example: a company allows an employee to pay for significant corporate costs using her own personal credit card and then allows her to keep the loyalty rewards from those purchases.
In most cases, corporate credit card points are used for business purposes, in which case, there is no personal benefit. However, if an employer allows an employee to use points generated from the use of a corporate credit card for personal purposes, the employer is required to report the value of the benefit on the employee’s T4 slip in the year the points are used. What is that value? On merchandise, travel bookings and experiential award packages, it’s the retail value of the item or package, plus applicable taxes; on charity rewards, it’s the actual value of the donation; and on gift certificates, it’s the face value of the certificate.