In most cases, no. Points you earn by spending on a business card are treated as a discount on what you bought, not as income, in both the US and Canada. The expense you paid by card stays fully deductible, but anything you pay for with points is not deductible, because no cash left your business. Confirm the details with your own accountant, since your setup can change the answer.
How does the IRS treat card points in the US?
The IRS generally treats points earned from spending as a rebate on your purchase, not as income. You spent money, and part of that money came back as points. A refund on something you bought is not new income, so you do not report it.
This is why most card points never show up on a tax form. The rule covers points you earn by making purchases. It is the same view you will find in Bankrate's guides on rewards and taxes.
There are a few cases where points can be income:
- Points with no spending required. Points paid just for opening an account, with nothing to buy, can be treated as income. Banks sometimes send a 1099 form for these.
- Points for doing something else. Points for referring a friend or for a survey are a reward for a task, not a rebate.
- Cash you did not earn by spending. If points are paid out as cash for something other than a purchase, ask your accountant how to report it.
If a bank sends you a 1099 for rewards, do not ignore it. Bring it to your accountant.
How does the CRA treat card points in Canada?
The CRA also does not usually tax points you earn on your own spending. For a business, the general view is close to the US view: points earned on purchases act like a discount, not a separate payment to you.
The CRA watches a few situations more closely:
- Points turned into cash. Cash back or points cashed out can be treated differently from points used for travel.
- Points used as pay. If a company lets staff keep points in place of salary, the CRA can treat the points as a taxable benefit.
- Plans set up to avoid tax. Any setup built to move value to you without tax gets a hard look.
For employees who earn points on company travel, the CRA has said it generally will not count those points as a taxable benefit unless one of the cases above applies.
Here is the short version side by side:
- US, points from spending: a rebate, not income.
- Canada, points from spending: generally not income.
- Both, points for no spending or for a task: may be income.
- Both, points used to pay someone: may be a taxable benefit.
Can I deduct a flight I paid for with points?
No. You can only deduct what your business actually paid in money. If you book a flight with points, no cash was spent on the fare, so there is nothing to deduct.
This is the rule people miss most. Look at two ways to buy the same $5,000 business class flight for a client meeting:
- Paid by card. Your business pays $5,000 on the card. You deduct $5,000. You also earn points on that spend.
- Paid with points. You use points for the seat and pay $300 in taxes and fees by card. You deduct only the $300.
The points still saved you $4,700 in cash. You just cannot also claim $4,700 as a cost. Claiming a deduction for a points booking is like deducting a gift card you were handed for free.
The card spending that earned the points is a different story. Every dollar you paid by card for real business costs stays fully deductible. Earning points does not shrink those deductions.
What if I use business points for a family trip?
If you are a sole owner and the card is in your name, using points for a family trip is usually just using your own discount. In most cases there is no tax and no deduction to think about.
It gets more careful when a company owns the card. If your corporation earns the points and you use them for a personal trip, that value went from the company to you.
- In the US, this can be treated like pay or a payout to an owner, depending on how your company is set up.
- In Canada, this can be treated as a shareholder benefit or an employee benefit.
Many small businesses use company points for owner travel with no trouble. But this is the area where your structure matters most. A sole owner, a partner and a corporation can each get a different answer. Ask your accountant before you book.
Two simple habits help:
- Never deduct any part of a personal trip, whether you paid by card or with points.
- Do not mix a business trip and a family trip on one booking without notes on which part is which.
What records should I keep?
Keep enough to show what you paid in cash, what you paid with points, and who traveled. That covers you in both countries.
A simple list:
- Card statements for every business expense paid by card.
- Receipts with the business purpose written down.
- Points bookings, showing the points used and the cash paid for taxes and fees.
- Who traveled on each trip, and whether it was business or personal.
- Any tax forms your bank sends about rewards, such as a 1099.
- Any cash back or points you cashed out, with the date and amount.
A shared sheet with one row per trip is enough. Your accountant will thank you at year end.
The points your business already earns are a real discount, and using them for travel is usually tax free. To see how many business class trips your spending already buys, see what your spending buys.