4 min read

cash back cards taxable

Written By

Justin da Rosa

Cash back credit cards are a great way to earn a little extra income – after all, why wouldn’t you want to get paid just for using your own money? That’s essentially how cash back cards work: your card provider sets an interest rate (say from 1%-2% cash back) that you earn on each transaction.

As an example, if your card provider, such as KOHO, offers you 2% cash back and you spend $2,000, you’ll earn $40. Sounds great, right? That’s why we’re such big fans of cash back around here. The rewards really add up over time.

You might be wondering, though, do you pay taxes on cash back earnings? The answer, unfortunately, isn’t black and white. While cash back earnings and rewards are typically earned tax-free, there are some situations where you might have to pay tax on them. Lets dig in.

Can Cash Rewards be Taxed?

First, let’s look at how cash back rewards are typically earned. We’ll use KOHO as an example.

Depending on the KOHO account you choose, you’ll earn between 1% and 2% on your spending. That means each time you use your card, you’ll earn that percentage of cash back, which will grow over time. The money isn’t automatically deposited into your account; there’s a category in your app called “Cash back”. It’ll show you the amount you’ve earned and, once you click it, you can choose to redeem it directly into your account.

(That section of the app also shows you your cash back rate and gives you options to upgrade your account to earn different cash back levels.)

While you’re watching that sweet cash back increase over time, you might wonder: are cash earnings taxable?

The good news is that cash rewards are generally not taxed when you earn them for personal transactions, such as buying groceries, paying bills, buying goods, and services – you know, pretty much all the spending the vast majority of Canadians do. So, unless you’re using your KOHO card for business transactions, your cash back rewards won’t be taxed.

However, if you do use your KOHO account for business expenses, such as purchasing office supplies, for gas you plan to claim on your taxes for business purposes, employee payroll, business software, or business vehicles, for example, you’ll need to claim the cash back on your taxes.

Are Credit Card Rewards Taxable?

Canadian tax regulations for cash back credit cards stipulate that if you earn points for work-related expenses, and if you redeem those points for cash, your credit card rewards are considered taxable. If you're unsure about whether or not you should claim your credit card rewards, speak to your accountant before filing your taxes.

When are credit card rewards not taxable income?

For most of us, the vast majority (if not all) of our credit card rewards aren’t considered taxable income. If all you’re doing is personal spending, you won’t have to worry about claiming your rewards on your taxes. Here are some examples of personal expenses:

  • Groceries for you and your family

  • Rent or mortgage

  • Cell phone bills for personal use

  • Prescriptions

  • Clothes

  • Recreation, such as gym memberships

  • Personal care products

  • Pretty much anything that you spend money on and don’t claim as a business expense

What to Know about Canadian Tax Laws

Canadian tax laws are constantly changing, but here’s the TLDR of what you should know.

  • Canada has a progressive tax system, which means people with higher incomes pay higher income tax rates

  • There are federal and provincial/territorial tax rates, which vary depending on where you live

  • Canadians have to report their income to the Canada Revenue agency each year. This includes employment income, business income, and investment income

  • Canada has a federal goods and services tax (GST) and some provinces have harmonized sales tax (HST), which combines both provincial and federal taxes into one rate (in Ontario, for example, HST is 13%)

  • Canadians are required to file their income tax returns by April 30th for the previous year (June 15th for the self-employed, but any taxes owed are still due by April 30th)

  • If you have a valid reason for not meeting the tax deadline, you can apply for an extension

Keep in mind that tax laws can change, and the specific rules vary by province or territory. To make sure you’re compliant with Canadian tax laws and take advantage of any potential deductions and credits, speak to an accountant for tax advice.

Maximizing Cash Rewards

As we mentioned, cash rewards are a great way to supplement your income and earn a little extra cash just by doing what we all do anyway: spending our money.

Maximize your cash rewards by finding a cash back card that works best for you. KOHO offers four different accounts and each one of them gives you cash back.

Our Easy account is a no-fee option that offers 1% cash back on groceries and transportation. Another great feature is that it gives you 0.5% interest on your entire balance.

Are you a foodie who likes to try all the latest and greatest restaurants? Our Essential plan costs just $4 a month and offers 1% cash back on groceries, transportation, food, and drink. It also gives you 4.5% interest on your first $500 and 2% on anything after that. You’ll also get 30% off Credit Building.

Want to unlock even more rewards? For $9 a month, our Extra account offers 2% cash back on groceries, transportation, food, and drink and 4.5% interest on your first $1,000 and 3% on anything after that. The Extra account also offers 30% off Credit Building and no foreign exchange fees, making it a great option to use as a travel card.

Finally, our supercharged Everything account costs $19 and gives you the best available benefits. They include:

  • 2% cash back on groceries, transportation, food, and drink

  • 4.5% interest on your entire balance

  • 50% off Credit Building

  • No foreign transaction fees

  • Real-time e-Transfers

Check out all our accounts to see which one might work for you.

Note: KOHO product information and/or features may have been updated since this blog post was published. Please refer to our KOHO Plans page for our most up to date account information!