Can I deduct an award ticket on my taxes?
Award tickets have value – there’s the cost of the taxes and fees and the value of the points redeemed. Wouldn’t it be great if you could apply the value of your Aeroplan ticket as a tax deduction? Canadian law, nor the CRA, provides much guidance on this matter. However, a 2010 case at the Tax Court of Canada, Johnson v Canada, provides some guidance on how award redemptions may be used as a deduction on taxes.
I am not a lawyer, nor am I a tax professional. Always consult a licensed attorney and/or another licensed tax professional. This is not legal advice, and shall not be considered as such.
In Jonhson v Canada, Johnson (the “Appellant”) flew to Chicago from Thunder Bay to obtain medical treatment. He redeemed 76,000 Aeroplan miles and $220 in taxes and fees for the ticket. At that time, s. 118.2 of the Income Tax Act (the “Act”) allowed for a deduction for travel expenses for medical treatment.
The Appellant submitted the value of a present-day cash ticket as a deduction for his 2007 taxes. The CRA only allowed the $220 taxes and surcharges, but denied the other portion of the deduction, claiming that Aeroplan points do not constitute as good consideration (payment), and therefore can’t be used as a deduction.
The Court was faced with two issues:
(1) Are Aeroplan points good consideration, meaning they have value and are covered under the Act?
(2) If the above is answered in the affirmative, what is the value of those points?
For the issue of whether Aeroplan points are good consideration, the Court found that, among other things, Aeroplan points can be redeemed for a set price for goods/services, and therefore, are good consideration.
As the first issue was answered in the affirmative, the Court then moved to assess the value of the points redeemed. Unfortunately, because of a lack of submissions by the Respondent, the Court didn’t cover the issue of how to value the points. In his submissions, the Appellant declared the value of the points as $2,280, the cost of the paid economy ticket (presumably full-fare). As the CRA allowed a $220 deduction in his initial claim, the Court granted $2,060 for the value of the Aeroplan points. The Court didn’t really cover their analysis of the value of the Aeroplan points, so although this case is precedent setting for being able to deduct the value of an Aeroplan ticket, it is not terribly persuasive for how to calculate the value of those points. Should we use the buying cost of an Aeroplan point? The equivalent cash cost?
Although this case favours the consumer, there isn’t much caselaw in the field. Whether or not we can deduct the value of award tickets for a variety of reasons looks favourable, however, I suspect more case law will have to be built to better answer this question.
Generally, aren’t miles earned on spending rebates? I don’t think you can deduct rebates.
The logic used in Johnson is that points confer a right upon the holder (to exchange for air transport), and those things that confer rights (for exchange) can act as good consideration. The Court did not go through an analysis about how the Appellant earned the Aeroplan points – the inquiry was focused on the potentiality that the points could be exchanged.
The only caselaw I could find that talks about this is Johnson v Canada, so I can’t comment on what a Court’s analysis would be if the inquiry were focused on the means of acquisision.
This specific case, however, appears to be based on one’s ability to deduct certain costs as medical expenses, which is somewhat different from deducting such travel as a business expense. Business related expenses are deducted at 100% while medical are ground down to much less.
IIRC there was a case about 10 years ago where the judge derived a formula to value a FF ticket. It involved the cost difference between the highest and lowest fares on a given route, sort of a mean number. It otherwise discounted any relationship between the number of miles redeemed.
What wasn’t raised was the matter of taxability of FF benefits since if one could claim a deduction for spending miles on a ticket, should not one be tamed when earning miles…just like the cash situation?
Considering a Classic Aeroplan redemption for flights between Chicago and Thunder Bay is 15,000, the court and Mr. Johnson were taken for a ride. Johnson because he paid 76,000 Aeroplan miles for a Market redemptions, the court because it too lazy to do its homework! That a court would accept the value of a FF ticket to be equivalent to that of a purchased ticket is sheer folly. CRA should have called someone from Aeroplan or Air Canada to testify what the actual cost was to Aeroplan to purchase the ticket. There is such a valuation in the exchange, and it’s about time it was revealed. Based on redeeming miles in several different programs over the years, I’ve come to the view that the actual payment to an airline is a dollar number represented by the number of FF miles redeemed divided by 10. It is nowhere near the actual full or even discounted fare the court seemed to accept. So in this case, AC would likely have received $760 plus fees but certainly not $2,280+fees.