7 March 2011 External T.I. 2010-0383501E5 - Travel Reward Points

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: Does the redemption of travel reward points result in a taxable benefit where the points were accumulated on the personal credit card of a previous employee/shareholder through business travel paid for by the corporation?

Position: No

Reasons: Provided all of the criteria listed in ITTN #40 are met, the travel reward points will not result in a taxable benefit.

XXXXXXXXXX 								2010-038350
									Ann Townsend
March 7, 2011

Dear XXXXXXXXXX :

Re: Taxation of frequent flyer/travel reward points

I am writing in response to your fax dated October 12, 2010 concerning the redemption of travel reward points. You would like confirmation that a taxable benefit will not result in a situation where the points were accumulated through business travel paid for by the corporation on the personal credit card of a previous employee/shareholder.

Written confirmation of the tax implications inherent in a particular transaction is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. We are, however, prepared to offer the following general comments, which may be of assistance.

All statutory references in this letter are references to the provisions of the Income Tax Act, R.S.C. 1985 (5th supp.) c. 1, as amended (the "Act").

Where an individual who is both a shareholder and an employee receives a benefit, it may be considered a taxable benefit as a shareholder under subsection 15(1) or a taxable benefit from employment under paragraph 6(1)(a). Both of these provisions are very broad and can include travel reward points used for personal travel that has been collected when traveling on employer paid business trips. Generally, the taxable benefit is recognized at the time the travel reward points are redeemed and the value of the taxable benefit is determined based on the cost of a ticket entitling a passenger to travel on the same flight in the same class of service and subject to the same restrictions as the reward tickets.

The situation you described does not provide sufficient information to conclusively determine whether or not a benefit was received by the previous employee/shareholder in his/her capacity as an employee or as a shareholder. There is a general presumption that an employee-shareholder receives a benefit by virtue of his/her shareholdings in those situations where the shareholder, or shareholders, can significantly influence business policy, except where the individual is able to establish otherwise. Exceptions to this presumption would be a situation where the benefit is available to all employees of the corporation or a situation where the benefit is comparable in nature and quantum to benefits generally offered to employees who perform similar services and have similar responsibilities for other employers of a similar size.

Where the benefit is received by an employee-shareholder in his/her capacity as an employee, paragraph 6(1)(a) includes as income from office or employment, the value of benefits of any kind whatever received or enjoyed by the taxpayer in the year in respect of an office or employment. The Supreme Court of Canada in The Queen v. Savage [1983 DTC 5409] and Nowegijick v. The Queen [1983 DTC 5041], stated that the meaning of "benefit of any kind whatever" is very broad and the words "in respect of" are words of the widest possible scope. Therefore, benefits received after employment has been terminated would be considered to be received in respect of employment.

Before 2009, Canada Revenue Agency ("CRA") was of the view that where an employer does not control the travel reward points accumulated by an employee on a personal credit card, it was the responsibility of the employee to determine and include in income the fair market value of any benefits received. Effect in 2009, CRA changed its view and no longer requires these employment benefits to be included in an employee's income. This change in position was announced in Income Tax Technical News #40 ("ITTN #40"), which provided that a taxable benefit will not arise where the employer does not control the travel reward points as long as the points are not converted to cash, the plan or arrangement is not indicative of an alternate form of remuneration, or, the plan or arrangement is not for tax avoidance purposes. It should be noted that where an employer controls the points (e.g., a company credit card), the employer will continue to be required to report the fair market value of any benefits received by the employee on the employee's T4 slip when the points are redeemed.

In the situation you described, should the travel reward points have been accumulated by the employee-shareholder in his/her capacity as an employee, it would appear that no taxable benefit would arise. However, an accurate determination on whether a taxable benefit arises in a particular situation is a question of facts that can only be resolved after a complete review of the facts, circumstances and relevant documents in the situation.

I trust the foregoing is of assistance.

Yours truly,

Guy Goulet CA, M.Fisc.
Manager
for Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch