15 June 2010 External T.I. 2010-0353041E5 - Loyalty programs

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Whether loyalty points on a company credit card give rise to a taxable benefit.

Position: Generally yes, but the employer is relieved from reporting requirements in this case.

Reasons: The points are accumulated on company credit cards but the employees have separate agreements for the rewards program and the employer does not control the points.

XXXXXXXXXX
							2010-035304
							Rita Ferguson
							519-645-5261
June 15, 2010

Dear XXXXXXXXXX :

Re: Loyalty points

This is in response to your email of January 5, 2010 inquiring about taxable employment benefits from loyalty points earned on company credit cards.

Your request presented a situation where an employer issues company credit cards to employees for use while travelling on company business. Although the cards as issued do not accumulate any reward points, the employees may sign up for a rewards program by paying an annual membership fee. Employees who sign up for the rewards program pay the membership fees personally and then accumulate reward points on their business travel. The points may be redeemed for merchandise, travel services and gift cards. The employer does not reimburse employees for the membership fee. You have asked if the benefits derived from the rewards points in this case are taxable and, if so, whether the employer is required to report the value of the benefits on the employee's T4.

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of a request for an advance income tax ruling submitted in the manner set out in Information Circular 70-6R5, "Advanced Income Tax Rulings", dated May 17, 2002. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on the internet at http://www.cra-arc.gc.ca. Where the particular transactions are complete, the inquiry should be addressed to the relevant tax services office, a list of which is available on the "Contact Us" page of the CRA website. Although we cannot comment on your specific situation, we are prepared to provide the following comments in respect of the issues that you raised. Please note, however, that these comments are of a general nature only and are not binding on the CRA.

Paragraph 6(1)(a) of the Income Tax Act includes in a taxpayer's income from an office or employment the value of board, lodging and other benefits of any kind whatever received or enjoyed by the taxpayer in the year in respect of, in the course of, or by virtue of an office or employment. The CRA's policy on benefits derived from credit card loyalty programs is the same as that for frequent flyer programs, as described in paragraph 14 of Interpretation Bulletin IT-470R "Employees' Fringe Benefits".

Where an employee accumulates points while incurring employment-related expenses which are reimbursed or paid for by the employer, the employee will be in receipt of a taxable benefit if the points are redeemed by the employee for personal travel or to obtain other personal benefits. Like other taxable benefits, the employer must determine the value, or make a reasonable estimate of it, and include that value on the employee's T4 slip pursuant to subsection 200(2) of the Income Tax Regulations. Where the employer has no control of the points being accumulated or redeemed, for example where the employee is reimbursed for business expenses charged to a personal credit card, IT-470R states that it becomes the responsibility of the employee to determine and include in income the value of any benefits received or enjoyed.

In this latter situation, and in recognition of the difficulties faced by employees in the valuation of such benefits and in tracking and identifying the benefits attributable to points accumulated by way of employment versus personal use of credit cards, Income Tax Technical News No. 40 ("ITTN 40") introduced a change in respect of the employee's obligation to report a benefit. Effective for 2009, the CRA will no longer require these employment benefits to be included in income by the employee provided:

a) the points are not converted to cash,
b) the plan or arrangement is not indicative of an alternate form of remuneration, and
c) the plan or arrangement is not for tax avoidance purposes.

We note that the change described in ITTN 40 does not extend to cases where the employer controls the points, such as those accumulated on a company credit card where the employer is, or has a right to be, apprised of the points allocations and redemptions. Benefits received or enjoyed by employees from reward programs in these cases remain taxable and the employer is obligated to include the value of the benefits on the employee's T4 slip.

However in a situation where the employer does not control the loyalty points even though the credit card itself is a company card, the employer will not be required to report the benefits derived from the reward program. The employee will not be required to report the benefits unless one of the three situations described in ITTN 40 exists.

Finally, it is our view that where an employee pays a membership fee to participate in such a loyalty program, then to the extent that the fee is not reimbursed to the employee by the employer, it would be taken into consideration in the determination of the value of the benefit in any case where reporting was required.

We trust that these comments have been of assistance.

Yours truly,

Renée Shields
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch