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Calculate payroll deductions and contributions

Loyalty or other points programs

Content has been updated for clarity, completeness, and plain language. No changes were made to the current Canada Revenue Agency (CRA) administrative policy.

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Determine if the benefit is taxable

Your employees may collect loyalty or other points, such as frequent flyer points or air miles, on credit cards when travelling on employer-reimbursed business trips or incurring other business-related expenses.

Generally, when your employee redeems loyalty or other points collected by you as their employer, it is a taxable benefit. The benefit only arises when the points are redeemed by the employee.

Depending on how the plan itself is structured, the benefit may not be taxable under the CRA's administrative policy  when your employee collects the points from a loyalty or other points program.

  • You (employer) collect the points: Option 1

    The CRA's administrative policy does not apply if you (employer) collect the points derived from a loyalty or other points program. The benefit received by the employee from redeeming the points is taxable.

    For more information on how to calculate the benefit, see Calculate the value of the benefit.

  • Your employee collects the points: Option 2

    Under the CRA's administrative policy, if your employee collects the points derived from a loyalty or other points program, when they redeem the points for rewards, it is not taxable as an employee benefit if all of the following apply:

    • The points are not controlled by you
    • The points are not converted to cash (where the employee is converting the points to cash, the employee needs to report the amount on their income tax and benefit return)
    • The plan or arrangement is not indicative of an alternative form of remuneration
    • The plan or arrangement is not for tax avoidance purposes
Examples – Where to report the benefit if taxable
Where to report the benefit if taxable
How to report Description
No benefit to report
  • Jude has a personal credit card that he uses for both personal and employment-related expenses.
  • The card offers loyalty points (not converted to cash) in the form of travel rewards.
  • The points are predominately collected from personal purchases.
  • Jude decides to redeem some of the loyalty points to take his family to a concert.

Result

  • Because Jude controls the points accumulated and redeemed on his personal credit card, Jude's employer is not required to calculate and report a taxable benefit on Jude's T4 slip.
  • Jude does not have to report the amount on the income tax and benefit return because the points are not converted to cash.
Employee reports the benefit on their income tax and benefit return
  • Melissa's employer allows her to use her personal credit cards whenever possible to pay for business expenses, which the employer subsequently reimburses to her.
  • To maximize the points earned, Melissa uses her personal credit card to pay for various business expenses of the employer, including travel expenses of other employees.

Result

  • Melissa is required to include on her income tax and benefit return the fair market value (FMV) of the goods or services when she redeems the points for personal use.
  • The employer does not have to report the amount on the T4 slip.

Reason

  • The CRA views this arrangement as indicative of providing Melissa with an alternate form of remuneration.
  • Melissa's employer has provided her with an economic advantage by allowing the extensive use of her personal credit cards for the purpose of maximizing her loyalty points earnings.
  • Melissa would not otherwise pay for business expenses of the employer that are unrelated to her own employment-related expenses incurred during the normal course of employment.
  • Melissa would not normally be expected to cover the cost of employment-related expenses of other employees.
Employee reports the benefit on their income tax and benefit return
  • Linda uses the company credit card to make employment related purchases.
  • When using the employer's credit card, she presents her personal travel points card for accumulating points.
  • She redeems the points she had collected on her travel points card to receive a new suitcase.

Result

  • Linda is required to include on her income tax and benefit return the FMV of the suitcase she had received from redeeming the points collected from her employment related purchases.
  • The employer is not required to report the amount on the T4 slip as they did not control the points.
Employer reports the benefit on T4 slip
  • Nick's employer has a company credit card under which loyalty points are earned.
  • Nick uses the card for employment-related purchases.
  • His employer is billed and pays the credit card charges, and receives the loyalty points statement directly.
  • Nick's employer allows him to redeem the points for personal rewards.

Result

  • Since Nick's employer controls the tracking and disbursement of the points, the FMV of the goods or services received by Nick represents a taxable employment benefit.
  • The employer is required to report the FMV of the goods or services on Nick's T4 slip in the year that the points are redeemed for personal items.

Calculate the value of the benefit

If the benefit is taxable, the value of the benefit is equal to the fair market value (FMV) of the rewards in the year.

Example 1 – No calculation

An employee uses their personal credit card to pay for employment-related purchases. The employer reimburses the employee. The card offers loyalty points which the employee converts to cash for a total amount received of $300.

The amount received as cash is not a taxable benefit as the points were not accumulated on a card where the employer collected the points. The cash amount received must be reported on the employee's T1 return as the points were converted to cash.

You do not need to do any calculations.

Example 2 – No calculation

The employee uses a personal credit card to pay for employment-related travel expenses. The employer reimburses the employee. The card offers loyalty points in the form of travel rewards (non-cash). The employee collects points on their employment-related travel expenses and personal purchases. The points are predominately collected from personal purchases. Employee redeems the non-cash loyalty points for the base fare ($600) on their personal airline booking.

The benefit received is not a taxable benefit as the employer does not control the points, the points were not converted to cash and the arrangement was not indicative of an alternative form or remuneration or tax avoidance.

You do not need to do any calculations.

Example 3 – No calculation

The employee uses a company credit card for employment-related purchases and collects loyalty points using their own frequent flyer card. The employee also collects points on their personal purchases. The employer does not receive a statement or any information regarding the employees points earned on the employee's frequent flyer card. The points are predominately collected from personal purchases. The employee uses the points to purchase a sound bar with a FMV of $400.

The benefit received is not a taxable benefit as the employer does not control the points, the points were not converted to cash and the arrangement was not indicative of an alternative form or remuneration or tax avoidance.

You do not need to do any calculations.

Example 4 – Calculations

The employee uses a company credit card for employment-related purchases. The employer receives the monthly statement and pays the credit card charges and collects the loyalty points. The employer allows the employee to redeem the points. The employee uses the points to purchase a tablet with a FMV of $400.

The tablet received is a taxable benefit because the benefit was received by the employee from redeeming points controlled by the employer. The taxable benefit is the fair market value of the tablet ($400).

  • $400 is the value of the benefit to be included on the T4 slip

The amounts must be included in the pay period they were received or enjoyed.

Withhold payroll deductions and remit GST/HST

There is no employee benefit to report if you do not control the points. The employee must report the value of the benefit on their T1 return.

If the benefit is taxable, you must withhold the following deductions. The amounts must be included in the pay period they were received or enjoyed.

The withholding and remitting requirement depends on the type of remuneration: cash , non-cash , or near-cash .

  • Non-cash and near-cash: Option 1

    Withhold:

    • Income tax
    • CPP
    • EI (do not withhold)

    Remit:

    • GST/HST in certain situations

  • Cash: Option 2

    Withhold:

    • Income tax
    • CPP
    • EI

    Do not remit:

    • GST/HST

 Learn how to calculate deductions and the GST/HST to remit on benefits: How to calculate – Calculate payroll deductions and contributions.

Report the benefit on a slip

If the benefit is taxable, you must report the following amounts on the T4 slip.

  • Non-cash and near-cash: Option 1

    Report on:

    • Box 14 – Employment Income
    • Box 26 – CPP/QPP pensionable earnings
    • Code 40 – Other Information

  • Cash: Option 2

    Report on:

    • Box 14 – Employment Income
    • Box 24 – EI insurable earnings
    • Box 26 – CPP/QPP pensionable earnings
    • Code 40 – Other Information

 Learn how to report the benefit on a slip: Fill out the slips and summaries – File information returns (slips and summaries).

References

Legislation

ITA: 6
Amounts to be included as income from office or employment
ITA: 6(1)(a)
Value of any benefit is to be included as income from office or employment
CPP: 12(1)
Amount of contributory salary and wages
ETA: 173
Taxable benefit is considered a supply for GST/HST purposes
IECPR: 2(1)
Amount of insurable earnings
IECPR: 2(3)
Earnings from insurable employment
IECPR: 2(3)(a.1)
Earnings from insurable employment – amount excluded as income under 6(1)(a) or (b), 6(6) or (16) of the ITA

 

What is a CRA's administrative policy for the purpose of taxable benefits

Generally, benefits that employers provide to their employees are taxable under section 6 of the Income Tax Act (ITA), unless specifically excluded in the ITA. The administrative policies of the CRA identify conditions under which some of these benefits may not be taxable. Our administrative policies are detailed in the specific topics.

What is a CRA's administrative policy for the purpose of taxable benefits

Generally, benefits that employers provide to their employees are taxable under section 6 of the Income Tax Act (ITA), unless specifically excluded in the ITA. The administrative policies of the CRA identify conditions under which some of these benefits may not be taxable. Our administrative policies are detailed in the specific topics.

Cash

Includes:

  • Physical currency
  • Cheques
  • Direct deposit

Near-cash

A near-cash benefit is one that functions as cash or something that can easily be converted to cash, such as a security, stock, or gold nugget.

Non-cash

A non-cash (or "in kind") benefit is the actual good, service, or property that you give to your employee. This includes a payment you make to a third party for the particular good or service if you are responsible for the expense.

 

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