Israeli Tax Authority Eyes Tax on Business Credit Card Reward Points Used Privately

In Israel, many self-employed individuals have long used business credit cards to pay for expenses, accumulating reward points that are later redeemed for personal benefits such as flights, vacations, or shopping vouchers. However, the Israeli Tax Authority now indicates it may require taxation on these benefits if the points were earned through business expenses but used for private purposes.

The Tax Authority argues that any private benefit derived from business expenses should be subject to tax, emphasizing the need to separate business-related benefits from personal ones. Yet, this poses a significant challenge since most people use a single credit card for both business and personal purchases, making it nearly impossible to track which points were earned from business spending versus private spending.

Furthermore, the value of reward points is ambiguous and not equivalent to cash, complicating any tax calculation. Points do not always translate to direct savings, as cheaper alternatives often exist without using points. Tax professionals and business owners alike find it difficult to quantify the taxable value of these rewards.

The article suggests that before enforcing such taxation, the Tax Authority should propose practical solutions, such as exemptions up to a certain amount, simplified calculation methods, or automated separation of points by credit card companies. Without such measures, the policy could impose additional bureaucratic burdens on tens of thousands of self-employed individuals already managing complex tax reporting and payments.

The author, Ariel Petel, a member of Elliott Global Israel and former vice president of the Independent Accountants Association, highlights the need for a balanced approach that recognizes the difficulty of tracking and taxing credit card reward points used privately by business owners.