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Are credit card rewards taxable?
Usually, no — but there may be an exception for rewards earned from work-related credit card charges.
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 holidays) 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.
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