Why Aeroplan’s “Pay with Miles” is a Terrible Joke

Aeroplan has recently implemented the ability for customers to pay their taxes and fees on a flight award using Aeroplan points. You can, therefore, get an award entirely using points with a $0 co-pay. Sounds great, right? Except for two things: (1) the value is absolutely horrible, and; (2) there may be possible tax implications.

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The Value

Although there’s no concrete way to value an Aeroplan point, they routinely sell on the gray-market for a little over a penny a piece. Redeeming for First Class travel, you can get incredible value using them. Aeroplan’s “Pay with Miles” seems to value an Aeroplan point at ~0.85 cents per mile – this is horrific. For example, a one-way trip from Toronto to London on Air Canada, which costs 30,000 Aeroplan miles, would have a 27,901 Aeroplan “Pay with Miles” payment… this is nearly the value of the redemption!

Tax Implications

The following is not legal advice, and is simply my academic musings…

There was a legal case, Mommersteeg v. The Queen, where the Court found that the redemption of Aeroplan points for a flight award, the points having been accrued through flights purchased that were reimbursed by the employer, was a taxable employee benefit. Not good! The Canada Revenue Agency (“CRA”) has stated, in Loyalty Programs- Technical Interpretation 2010-0353041E5 that points accrued through the reimbursement by the employer, and then redeemed for a flight, are indeed a taxable employee benefit. So it looks like the CRA interprets the earning of points through employment-related activities as broadly fitting within their taxable employee benefit definition.

However, in Income Tax Technical News No. 40, the CRA stated that it recognized the complexity of valuing and tracking points that were earned as an employee benefit, and said they would not seek enforcement if:

(a) the points are not converted to cash;

(b) the plan or arrangement is not indicative of an alternate form of remuneration, and;

(c) the plan or arrangement is not for tax avoidance purposes

However, if an Aeroplan customer, using their points earned as a taxable employee benefit on a “Pay with Miles” redemption may not be in compliance with the above enforcement exception. Redeeming Aeroplan points as a direct “cash-off” redemption would, prima facie, seem to violate the first condition for the exception: “(a) the points are not converted to cash.”

It could be argued that the “Pay with Miles” redemption is not a conversion into cash. However, it is clearly an exchange for value, and a value that is directly and clearly defined and due on the flight purchased.  You cannot redeem points for government taxes – Aeroplan is simply paying that tax liability on your behalf after having redeemed the points. It is  an indirect but not distant conversion of the points into cash.

Therefore, I believe that someone who earned their Aeroplan points as a result of a taxable employee benefit (the definition of which is broad and encompassing), and used those points on Aeroplan’s new “Pay with Miles” scheme, may be required to report the value of that redemption to the CRA. So, not only does the “Pay with Miles” program offer horrific value, it may actually cost you in terms of a tax liability. Again, these are just my musings, and do not constitute legal advice in any way whatsoever.