Earn Rate #2 - Business Owners

Thie Keeper Card series makes the case for why specific cards deserves an ongoing spot in your wallet despite any annual fees or alternative options. As always I'm writing for a Canadian market, and at times targetting professionals who may have business expenses and need additional cards in that context.

If you haven't already I strongly recommend you read my first Earn Rate Keeper Card article which made the case for the Amex Cobalt, an easy recommendation to many. And if you're really new to this my article on Why Amex should be something you consider. This article is about a niche keeper card for earn rate. Specifically if targets individuals/businesses with consistently high ($20-40k per quarter) spending and/or have significant tax payment obligations.

What Makes a Keeper - Earn Rates

I already showed why the Amex Cobalt is king for food purchases (and with creativity it can be top in class for many other types of purchases), but if you're a business owner you probably have a lot of uncategorized spend that is destined to earn at whatever the base earn rate is. You probably also have significant regular tax obligations which most people just pay from the bank, while some advanced credit card users may use it to Manufacture Spend to Hunt SUBs and other spend gated benefits such as earning SQM/SQS for Aeroplan status with an Aeroplan Card.

With core level cards typically earning 1x on uncategorized spend, the case is often made to upgrade to a premium card for 1.25x return. This could be the TD Aeroplan Visa Infinite Privilege (AP VIP), RBC Avion Visa Infinite Privilege (Avion VIP) or Avion Business Visa Infinite (on first $75k before reducing to 1x), or one of the premium Amex cards (the Business Platinum card, or either the personal or Business Amex Aeroplan Reserve). Surprisingly, despite its blockbuster annual fee, the Amex personal Platinum does not make this list as it only earns 1x uncategorized.

Certainly with high enough regular spending these cards will be the top dogs, and whether you'd rather the flexibility of Amex's MR, the added Air Canada benefits of the AP VIPs, or want to go all in on Avion you'll pick the card that works for you. I'll go more into these another time, because for now I want to highlight a Golden opportunity for people in a specific spending range.

Golden Opportunity

The Amex Business Gold card is a core level card with a manageable annual fee of $199 and a base earn rate of 1x. It doesn't come with all the fancy lounge perks of the Platinum series, but under the surface is an incredible power.

While the advertised 1x rate is nothing special, it has a perpetual spend bonus which can amp up the return over critical thresholds for the right people.

Namely, spend over $20k in a quarter and you get an extra 10k points. That means that if you were to perfectly spend $20k every quarter you'd end up with 120k total for your $80k spend, a return of 1.5x on uncategorized spend. The extra 0.25x over a premium card might not seem like much but in this perfect scenario it's 20k points more annually (cash value $200, travel value $400+), with an annual fee that is hundreds of dollars lower making for meaningful value proposition. Before you think "well I don't spend that much, it's not for me", I'd ask that if you're a business person you read further as I'll discuss ways to make it work.

Now realistically most people won't be able to perfectly target $20k per quarter, and they shouldn't because if you spend only $19,999 you won't get the bonus. So let's consider the breakpoints:

• At $10k/q you earn 10k points or 1x

• At $20k/q you earn 30k points or 1.5x

• At $30k/q you earn 40k points or 1.33x

• At $40k/q you earn 50k points or 1.25x

• At $50k/q you earn 60k points or 1.2x

As you go beyond 40k/q the earn drops towards the baseline rate of 1x. But consider that even at 40k, you are still ahead by the difference in annual fee, so depending on other benefits it could make sense. At the end of the day, in the right circumstances the Business Gold has perhaps the highest uncategorized earn rate in travel points in Canada outside of SUBs. If you've read some of my other articles you may know why I'm particularly interested in earn rates over 1.25x, namely manufactured spend.

Manufactured Spend

It's not uncommon to hear people talking about optimizing their "organic spend", getting the most from money they were going to spend anyways. This might be simply by using credit instead of debit, or by selecting the "right" card (eg. cobalt for food). But for many of us there are expenses that we brush off as "not eligible" for credit cards. You may be aware of services that let you use your credit card for some of these expenses but their fees eat away at your return.

First off you can convert many different bill types into an Amex eligible expense using Chexy this includes things like rent, insurance, utilities and more. Note that as of writing their tax payments are limited to Visa only and for personal taxes. With a fee of 1.75%, earning rewards worth upwards of 3% can make a lot of sense. But if you need even more spending, you can consider using Paysimply for taxes at a fee of 2.49%. But is it worth it?

To put it more clearly, given the Business Gold's ability to generate as much as 1.5x return, if valued at 2 cents per point, this is a 3% return, greater than the fees and a potential for arbitrage. If a reliable 0.5% back doesn't seem worth it, stick with me a little longer and I think you might change your mind.

I'm specifically interested in the case of monthly tax obligations to the CRA. Depending on your business size these can vary widely and be in different forms (ie. Installments, payroll, GST/HST etc). You can pay these taxes with a 2.49% fee using Paysimply. By using manufactured spend, provided you have enough taxes owing, you can make sure to optimally allocate just enough spend to unlock the bonus, and keep the other spend to put on a 1.25x card or towards a new sign up bonus.

Provided your monthly obligations including your taxes reliably exceed 6.7k you can take advantage of this but logistically it would be even easier for people who could make a single transaction a quarter.

So let's walk through the simplest example step by step.

• Log into your business CRA account

• Click on managed pre-authorized debits

• Copy down the relevant alphanumeric tax account number

• Select the relevant autopay and click skip next payment, note I don't currently have the skip option visible as I already skipped the next payment but it should be there unless you're within 5 days of scheduled payment

• Go to Paysimply's website and click the button for paying the CRA

• Paste in the account number you copied and select the correct payment type (ie is this an installment or an amount owing).

• Enter the relevant amounts, dates, credit info, and submit.

• Assuming you're paying business taxes, save a copy of the receipt for tax purposes (we'll come back to this in a moment)

Let's break down the cost for $20k in manufactured spend this way

$20,000*1.025 = $20,500 or a $500 fee

You earn 1x on 20,500 plus 10k bonus or 30.5k for $500.

Eagle eyed readers will note that due to the fee, the $20k payment is actually more than $20k spend, so you could do a payment of $19,512.20 to end up at $20,000.01, but I feel like a round tax payment makes it easier to know how much remains to be done from the bank account.

Mind Your Business

Maybe you aren't convinced, you see 30.5k or $610 in estimated travel value for $500, and think it isn't worth the effort especially since the money is locked into Amex rewards. But here is where I finally come back to the business angle. Provided your accountant gives the blessing it is entirely reasonable to deduct the transaction cost as a business cost (just as you can deduct any banking fee), so we are talking $500 in corporate pre-tax money to gain $610 in post-tax personal gain. Depending on marginal tax rates that $500 if paid out as a bonus would have been slashed down to under $250. Multiply this by 4 quarters in a year and you get ~$2400 a year for travel instead of $1000. So ask yourself if $1400 more in post tax is worth you going through this process a few times a year. If you have enough business expenses that are eligible for Chexy's 1.75% fee the net benefit is even greater.

You might be wondering why I put such an emphasis on getting greater than 2.5% return on the 2.5% fee if one is pretax and the other is post tax - wouldn't it still be a win even at par or even below? Well I have several reasons

1. This takes time, not much, but some to log in and click around whether it's once a quarter or once a month

2. This takes effort to track, not much, but some to keep track to make sure you don't double pay or miss out

3. In the event that your accountant/the CRA didn't think the fee should be deductible it would be nice to still come out ahead

Still Not Convinced?

The good news is, even if you're unsure about this, it is a low risk thing to try out. The Business gold has a sign up bonus of 40k points for $7.5k spend. So long as you can make that minimum you could bail on the whole strategy and still be well ahead of the $199 annual fee. In fact, given the floor value of 1cpp for redeeming against statement, you could abandon travel points all together and use that welcome bonus to take $400 off your statement. So give it a try for the first quarter, make sure to at least put through $7.5k to get your SUB, but ideally $20k to get the 10k bonus, and then re-evaluate. Was it all too much work and you want to cash out that $700? Or do you maybe want to start daydreaming about where 70k points can already take you by Maximizing your Redemptions.

And maybe you can't help but imagining where you could go next year if you just keep at it for one year.... I mean you already paid the annual fee, so why not? A year in you should have 160k from this card paying your taxes...

Business class with Emirates direct to Dubai. I don't know about you, but that's an experience I know I'd never have otherwise, especially when this is the cash price:

Conclusion

Thanks to its relatively low annual fee compared to premium cards and its unique earn structure, the Amex Business Gold card has the opportunity to be an effective earner by being the best card (in terms of points earned) for making ongoing tax payments, turning one of our biggest expenses as professionals into another source of earning. If you're spending over $50k per quarter you might be better off with a more expensive card with uncapped 1.25x. If you're under $20k per quarter then the RBC business Avion VI card could be the best choice as the cheapest 1.25x card. Reach out for a consult if you want to crunch the numbers together.

Advanced Reading

For more advanced/comfortable players this strategy can be applied to reliably churn through cards with ambitious minimum spend requirements. This wouldn't be a keeper card strategy in that case but rather a case of Sub Hunting. For example the Amex Business Platinum has a 80k bonus for $15k spend in 3 months. Normally this spend would only earn 18.75k points, but the sub catapults it to 98.75k or an incredible 6.6x earn rate. You could then enjoy the card benefits rest of the year and decide if they are worth it to you to keep the card on the basis of ongoing Luxury Benefits (one of the reasons I use to decide Keeper Cards). If you plan on Sub Hunting however, care should be taken in selecting the order of the cards as "family language" in the terms of service block you from receiving the Amex Personal Gold SUB if you've already held the Personal Platinum.

And for the Aeroplan focused of the world, this strategy could prove useful to generate additional SQS/SQM to hit the next frequent flyer status. People who infrequently fly, but do so in expensive cash flights (perhaps business class for work) can utilize the fact that the premium AP cards generate 1 sqs/1000 SQM for every $5000 in spend on the card. The base 1.25x points wouldn't be so dramatically outearning fees, and aeroplan points are less flexible than Amex ones, but if it can push you to the next status, the perks can definitely be worth the effort.

Referral links

To see the access the best public offers for different Amex card such as the Business Gold, or Platinum click here. If you're a business owner considering your first business card, we would be happy to hop on a call to help you sort out the best card for you as there are more options to consider.

You're going to need somewhere to stay after all of these free flights. The Amex Bonvoy or the Business Bonvoy card will earn you free hotel stays and can be combined with the Aeroplan eStore for some incredible double dipped rewards.

If you're on the fence, or wondering about other cards reach out to me for a free consult, and if you sign up for a card through my link, let me know and I will walk you through advanced tricks and personalized advice to help you get the maximum benefit both from earning and redeeming points - getting your travel journey going faster than you ever thought possible.

Disclaimer

These posts are all made in good intentions and are to the best of my ability accurate at the time of writing. That said, the official terms and conditions and current sign up bonuses should be verified and interpreted in the context of your personal financial situation.