Loyalty Programs - A Taxable Benefit?

Should your organization be declaring employee rewards programs?

Loyalty Programs - A Taxable Benefit?

Are your employees, for example, collecting "air miles" when making purchases with a company credit card? The Canada Revenue Agency's policy when  employees receive reward points for items claimed as business expenses states that the value of the points may be taxable to the employee. 

Loyalty and other "points" programs
Your employees may collect loyalty points, such as frequent flyer points or air miles, on their personal credit cards when travelling on business trips, even though you reimburse them for the amounts they spend. Usually, these points can be exchanged or cashed in for "rewards" - goods or services, including gift cards or certificates.
When you (the employer) do not control the points, your employees do not have to include in their income the value of the rewards they received or enjoyed from the points they collect on these business trips, unless:

  • the points are converted to cash;
  • the plan or arrangement between you and the employee seems to be a form of additional remuneration; or
  • the plan or arrangement is a form of tax avoidance.
If any of the conditions above are met, the employee has to declare the fair market value of any personal rewards he or she received as income on his or her income tax and benefit return.

If you (the employer) control the points, for example when the employee uses a company credit card, you have to report the fair market value of any personal rewards he or she received from redeeming the points on his or her T4 slip.
You have to include any GST/HST that applies in the value of this benefit.
Payroll deductions
If the benefit is taxable, it is also pensionable. Deduct CPP contributions and income tax. If the taxable benefit is paid in cash, it is insurable. Deduct EI premiums. If it is a non-cash benefit, it is not insurable. Do not deduct EI premiums.
Reporting the benefit
You must report the value of the taxable benefit on a T4 slip, in box 14 "Employment income" and in the "Other information" area under code 40 at the bottom of the employee's slip.
(Source – Canada Revenue Agency)
  • Bill Smyth CPA, FCGA, FCPA
For more information contact info@onpayroll.ca

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