Missing the Point? Financial and Tax Considerations for Loyalty Points
Jamie Golombek, Managing Director, Tax & Estate Planning, CIBC Financial Planning and Advice
“A recent CIBC poll found that over half of Canadians collect points, yet 82% of them don't consider the points as a financial asset. And what's even more surprising, is about 73% of Canadians don't even consider what it costs on a retail basis to buy that reward they're otherwise using points to redeem. We've just issued a new report called, "Missing the Point?" which looks at all of the financial and tax considerations of collecting and spending points.”
“The good news is for most people we earn points from personal spending, which means if we spend money at a retailer and put it on our credit card we accumulate points which can then be redeemed for personal merchandise. There are no tax implications here whatsoever, but there are certainly financial considerations. Every time I use my points for something, I first go and see what it would cost me to buy that same item in cash and I look at the value. And I say, am I using a realistic number of points, or should I save those points later on and just buy that item with cash? Most Canadians are not doing that and therefore are you using your points wisely? Points should really be considered like an asset. That's an asset on your balance sheet, especially people that are accumulating tens of thousands of points; this is something that can be used for future merchandise or travel.”
“In many of the credit cards that you might own you can use those points towards financial goals as well. It doesn't just have to be travel. They can also be used for buying a TFSA or even paying down debt. So it's important to look at your own personal credit card to see what other reward options are available to you.”
A taxable benefit?
“If you are receiving points through your business there may be a concern depending on how you received those points as to whether you'd have to report that as a taxable benefit. Now in most scenarios where the employee uses their own credit card to accumulate points, even though they're using it for business expenses that are then reimbursed, the CRA's general position has been quite lenient and said, that is not considered to be a taxable benefit. Now my report goes through a couple of examples where it shows, that if for example, the points are a form of disguised remuneration, so let's say for example you're an employee and you're charging all of the employees other travel on your card so that you can collect the points, in that case there actually may be a taxable benefit to you. There are other scenarios where let's say the employer has their own credit card, they pay for all expenses they control everything but you get to keep the points, in that scenario in fact the employer may have an obligation to T4 you at the end of the year for the value of that tax benefit. So if you want more information about points, how to use them, how to save them, how to spend them, and ultimately some of the tax issues including the donation of points to charity, whether you can get a receipt, using points for valid medical expense travel, please be sure to read our latest report.”
Canadian Imperial Bank of Commerce Website - Copyright © CIBC.