Credit card rewards usually aren’t taxable. But, under some circumstance, the CRA may want you to pay tax on rewards earned from charging work-related expenses to your credit card.
When are credit card rewards taxable?
As a general rule, credit card rewards are nontaxable at both the individuals and business level. This applies to cash back rewards, points and travel miles.
However, there are 3 circumstances under which employees must pay tax on credit card rewards points. According to the CRA, employees are taxed on credit card rewards points if:
The rewards are converted to cash,
The rewards seem to be given as part of a employee remuneration plan, or
The rewards are a form of tax avoidance
If any of your rewards fall under these conditions, you must determine the fair market value of those rewards and declare it on your personal tax return as part of your income (include any GST/HST that applies, if any). Your rewards will be subject to CPP deductions. If paid out in cash, taxable rewards are also subject to EI deductions.
If your employer controls the rewards associated with the rewards card you used, then they must report the fair market value of your rewards on line 14 of your T4 slip. Learn how to calculate the value of your credit card rewards in this guide.
Why aren’t credit card rewards always taxable?
The CRA usually considers credit card rewards as discounts rather than income, and so these rewards are not taxable. This is also true of other types of monetary gifts like prize draws, lottery winnings, gifts for special personal occasions (like birthdays, weddings or religious holiday) and awards for employment-related accomplishments.
While financial disbursements that fall into the CRA’s definition of gifts, awards or discounts are not taxable, disbursements that are considered rewards are taxable. Rewards include cash, non-cash or near-cash (gift cards, securities etc.) gifts related to an employees’ work performance rather than their overall contribution to the workplace. See the CRA website for more information.
How much will I be taxed on my credit card rewards?
If your credit card rewards are taxable, you simply add the amount to your other employment income on your personal tax return. The tax rate depends on how much you make as well as the province or territory in which you live.
Compare rewards credit cards
As mentioned above, credit card rewards usually are nontaxable. That said, don’t let taxes stop you from getting the card you want. Here are a few great credit card options for rewards.
Credit card rewards usually aren’t taxable unless you converted the rewards into cash, the rewards appear to be part of an employment remuneration plan or the rewards appear to be a form of tax evasion. If you’re not sure whether your credit card rewards fall into any of these categories, contact a tax professional.
Taxes shouldn’t be the only thing you consider when choosing a rewards credit card — also consider fees, interest rates, the type of rewards offered and your spending habits to find the best credit card for your needs.
Frequently asked questions
The same rules apply to personal and business credit card rewards. Rewards are not taxable unless (1) you convert your rewards into cash, (2) the rewards appear to be part of your remuneration as an employee or (3) the rewards appear to be a form of tax evasion.
No. The taxability of credit card rewards is based on how the rewards are given and used rather than the form in which those rewards were earned.
Your provider will mail you a copy of your credit card agreement when your card is mailed to you. You can also probably find your agreement by logging into your online credit account. If you still can’t find your card agreement, give your provider a call using the number listed on the back of your card.
Stacie Hurst is an editor at Finder, specializing in loans, banking products and money transfers. She has a Bachelor of Arts in Psychology and Writing, and she completed one year of law school in the United States before deciding to pursue a career in the publishing industry. When not working, she can usually be found messing around with games, photography or floral arrangements in memory of her former days as a flower shop assistant.
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