Many Small-Business owners often turn to their personal Air Miles, Aeroplan or other travel-point accounts to pay for business-related trips. They may have even sought reimbursement from their corporations for the fair-market value of the points they redeemed. But there are tax implications, both to the individuals and their corporations, of such transactions.
Those implications were clearly on at least one taxpayer's mind and the matter was addressed last fall by the Canada Revenue Agency in a technical interpretation letter. The specific case involved a professional corporation -- such as an incorporated accountant, dentist, lawyer, medical doctor, veterinarian or chiropractor -- that reimbursed the professional for tickets obtained using personal Air Miles for employment-related air travel. In this case, the professional accumulated a combination of personal Air Miles and business Air Miles, the latter being accumulated while travelling on employer-paid business trips.
When determining whether business or personal travel miles have been used to obtain tickets for business-related travel, the CRA's general assumption is that the business travel miles are used first. In other words, if you've collected enough business travel miles to cover the amount required for a ticket, the CRA will assume that any amount paid to you by your corporation, in excess of any taxes or fees incurred to actually redeem the travel miles, must be included in your income as an employment benefit.
On the other hand, if the business travel ticket was acquired purely through the redemption of personal travel miles, you can be reimbursed by your corporation for a reasonable amount equal to the fair-market value of the ticket. This fair-market-value reimbursement can then be deducted by your corporation for corporate tax purposes.
What's the appropriate fair market value of the reward ticket? Based on prior jurisprudence, the CRA has adopted the practical approach that it's the price that you would have had to pay for a comparable ticket entitling you to travel on the same flight in the same class and subject to the same restrictions applicable to the reward ticket.