Are Credit Card Rewards Taxable?

Before you sit down to file your taxes, it helps to know if your credit card rewards are taxable. There’s no quick or simple answer – it depends on whether you’re using the card for personal or business reasons and how you’re cashing out the rewards.

By and large, credit card rewards aren’t taxed since you typically earn them by making purchases. The Canada Revenue Agency views these as discounts on purchases, rather than income.

Below, we take a look at how rewards may or may not affect your taxes. We’ll also check out some of the best rewards credit cards to help boost those earn rates.

Are credit card rewards taxable?

So, are credit card rewards subject to taxation?

It depends on whether your purchases were for business or personal reasons.

Rewards on personal purchases

Any rewards earned on personal purchases are not subject to income tax in this case.

Why? The CRA recognizes credit rewards as a discount, not income. Therefore, you don't have to worry about reporting what your rewards are worth, even for simple cash back.

Now, that's not to say things can't change. Legislation could change in the future, and your rewards may be subject to taxes.

But at least for the foreseeable future, they won't be.

Rewards for business purchases

Business purchases are another story.

Whether it's expenses for your small business, or you're an employee who uses a credit card to make purchases for your work and get reimbursed (i.e. a business trip), your rewards may be subject to income tax.

Whether your rewards can be taxed depends on whether you're earning cash for them. If you collect cash back or turn rewards points into cash, you have to report these as taxable income.

If not, then you're fine.

What about business credit card rewards?

Things are a little different if you provide employees with a company credit card. This makes the employer responsible for the points they earn. Specifically, you must report on their T4 the fair market value of the personal rewards they received. These points are now a personal benefit and are subject to income tax.

This last part makes sense – it can be a way to avoid paying taxes. If one way to pay your employees is to give them a ton of points in place of some salary, you can avoid significant taxes by getting plenty of free rewards.

However, if you use the points for business-related expenses, then they aren't subject to tax.

Summary: Which credit card rewards are taxable

Here's a summary of what is and isn't taxable when it comes to credit card rewards:

Overall, the two general rules are:

• Credit card rewards from personal expenses are never taxable
• Collect points (and don't redeem them for cash) for business expenses

How does income tax affect your net credit card rewards?

If you have to report credit card rewards on taxes, how can it impact your taxes? What might you owe?

Here are a few examples, using Ontario as the province of residence, with varying amounts of rewards that need to be included on a tax return, at different income levels:

You're obviously still much farther ahead, but if you stick with rewards points (instead of cash), it's that much more in your pocket.

Factoring in tax brackets

As you can see, your tax bracket plays a role in this. As your income increases, you'll be paying more in taxes.

Take our first and last examples: Even though you've only reported half the rewards, you've lost a little bit more of them.

You can view the current tax rates on the federal government's page: Tax rates and income brackets for individuals.

Best rewards credit cards in Canada

Here are a few top rewards credit cards to consider, including a business rewards card:

Credit Card	Welcome bonus	Earn rates	Annual fee and income requirements	Apply now
American Express Cobalt® Card	Up to 15,000 bonus points (terms)	* 5 points per $1 spent on eligible groceries and restaurants * 3 points per $1 spent on eligible streaming services * 2 points per $1 spent on eligible gas, transit, and ride share purchases * 1 point per $1 spent on foreign currency purchases * 1 point per $1 spent on all other purchases	* $155.88 * No income requirements	Apply now
MBNA Rewards World Elite® Mastercard®	$150 GC Boost + 30,000 bonus points (terms)	* 5 points for every $1 spent on restaurants, groceries, and select recurring bills (up to $50,000 spent annually per category) * 1 point per $1 spent on all other purchases	* $120 * $80,000 personal or $150,000 household	Apply now
TD® Aeroplan® Visa Infinite* Card	Up to 45,000 bonus points (terms)	* 1.5 points per $1 spent on eligible gas, electric vehicle charging, grocery and direct through Air Canada purchases * 1 point per $1 spent on all other purchases	* $139 * $60,000 personal or $100,000 household	Apply now
RBC Avion Visa Infinite	$100 GeniusCash + 55,000 bonus points (terms)	* 1.25 points per $1 spent on travel * 1 point per $1 spent on all other purchases	* $120 * $60,000 personal or $100,000 household	Apply now
BMO Ascend™ World Elite®* Mastercard®*	$125 GeniusCash + Up to 90,000 100,000 bonus points, first year free (terms)	* 5 points per $1 spent on travel * 3 points per $1 spent on dining, entertainment, and recurring bills * 1 point per $1 spent on all other purchases	* $150 * $80,000 personal or $150,000 household	Apply now

FAQ

Do credit card rewards go on taxes?

If you’re talking about personal rewards that you earn on purchases, then they aren’t taxed. However, if you use your personal card for business expenses and convert the points to cash, it is taxable income.

Are loyalty rewards taxable?

Credit card loyalty rewards aren’t taxable if you earned them by using the card to make purchases, since that essentially makes the reward a discount, not income. If you didn’t have to spend to get rewarded, it may be taxable.

Can you pay income tax with a credit card?

The Canada Revenue Agency allows you to pay income tax with a credit card through a third-party, but be aware that the third-party might charge you servicing fees, which could be hefty if your bill is high.

What's the best rewards credit card in Canada?

The American Express Cobalt Card is the best rewards credit card in Canada, earning up to 5 points per $1 spent. When you consider the point value, your return is up to 10% on your spending.