Are you Planning to Give Gifts to Your Employees this Holiday Season? Do You Know What is Taxable?

By Randall Orser | Business Income Taxes

At this time of year many employers give a Christmas or annual bonus – did you know that this is a taxable benefit if paid in cash or a cash equivalent such as gift cards?

You might think about giving your employees gifts instead of cash bonuses so that both of you will benefit on your Canadian income tax.  Employers can use the total cost of the gift as a tax deduction and employees do not need to declare the cost of the gift as part of their taxable income.

Under CRA rules all gifts to employees are considered to be taxable income except for the following exemptions:

1.   It is non-cash and less than $500 in fair market value per year and only given for the following reasons:

  • A Religious or other special event
  • Birth of a child
  • Wedding
  • Birthday

2.   It is a non-cash long standing service award valued at less than $500, this can be given once every five years.

3.   An Award for an employment related accomplishment.  These are allowed when:

  • It has clearly defined criteria
  • A nomination and evaluation process
  • Limited number of recipients

4.   Employer provided parties or social events where the cost is $100 per person or less.

5.   Meals or other hospitality services at work-related functions such as meetings or training sessions.

6.   Valueless items such as tea/coffee, snacks, t-shirts, hats etc.

There is no limit to the number of gifts an employee can receive in a given year as long as the total value is not more than $500.  Small gifts such as mugs or chocolates etc. are not included in the $500 limit.

If you want to give your employees gifts that are tax deductible for your company, you need to be careful what you give.  Items that can easily be converted into cash such as gift cards or stocks will be considered to be taxable employee benefits as will some performance related awards and bonuses.  Included under this rule are:

  • Gift Cards
  • Rewards that include employer-provided meals or accommodations such as trips
  • Cash or non-cash awards from manufacturers that are given to employers then passed onto employees
  • Points for travel, accommodations or other rewards
  • Gifts given by manufacturers to employees of dealerships

If you want to give Cash Bonuses or near-cash bonuses such as gift cards to your employees, it must be through payroll and must have taxes deducted.

For full list of taxable or non-taxable benefits and allowances visit the link below:
CRA's Benefits and allowances chart


Follow

About the Author

President/CEO Number Crunchers® Accounting Inc. Learn how to just say stuff it to this bookkeeping thing with our 'Just Say: "Stuff It" To Bookkeeping program.