New Tax policies have just been implemented by The Canada Revenue Agency. Expect to see more scrutiny regarding loyalty points and redemption in the near future. Auditors will be seeking these errors and omissions upon review of your books. Be sure you understand your obligations.
Considered “near-cash” in most cases, loyalty points, when redeemed and given to employees are a taxable benefit. The responsibility of reporting the "income" is dependent on who owns the points account.
LOYALTY ACCOUNT EXAMPLES:
Bank rewards cards
COMPANY POINTS ACCOUNT
EMPLOYER REPORTS EMPLOYEE BENEFIT:
When an employee makes company/work related purchases with a company owned credit card or reward account, they accumulate points. If an employee then redeems the points/rewards, it is considered a taxable employee benefit. The Employer is responsible for reporting the fair market value (including taxes) of the items or services purchased with said points. It will be included as income on the employees T4.
EMPLOYEE POINTS ACCOUNT
EMPLOYEE REPORTS INCOME:
If an employee uses their own credit card/points account and is reimbursed for company purchases, point redemption can be considered additional income if:
the points are converted to cash
the plan or arrangement between you and the employee seems to be a form of additional remuneration (job perk)
the plan or arrangement is a form of tax avoidance
In the above instances, the employee must report the Fair Market Value of the goods or services (including PST/GST) redeemed as "additional income" in their personal tax return.
If the points are not redeemed as cash, (IE - airmiles are redeemed for future flights and NOT cash) the CRA says this isn’t considered a form of additional remuneration and is therefor not taxable income.
For the link to the CRA website regarding Employee Benefits and Loyalty Points, click here.
View our handy 2 page printable Employee Benefits Chart.
For further clarity on these and other bookkeeping issues, contact ProStrata-G for a free consultation firstname.lastname@example.org.
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