I received a gift from my employer and it was added to my income and taxed, why?

By Randall Orser | Personal Income Tax

employee gift--tidbits 2014-03-19 TNWe all like to receive a gift from someone we know, and let’s face it we all feel special when we do. As an employee, when you receive something from your employer, you know you’re doing a good job and are being recognized for it, or it could be for a special occasion, such as a birthday. Sadly, the government doesn’t see it that way and considers any gift received as being in the course of employment, even a birthday gift.

Gifts and Awards

A gift or award that you get as an employee is a taxable benefit from employment, whether it is cash, near-cash, or non-cash. However, CRA does have a policy that exempts non-cash gifts and awards in some cases.

Cash and near-cash gifts or awards are always a taxable benefit for you, the employee. A near-cash item is one that can be easily converted to cash such as a gift certificate, gift card, gold nuggets, securities, or stocks.

A gift has to be for a special occasion such as a religious holiday, a birthday, a wedding, or the birth of a child.

An award has to be for an employment-related accomplishment such as outstanding service, employees’ suggestions, or meeting or exceeding safety standards. It is recognition of an your overall contribution to the workplace, not recognition of job performance. Generally, a valid, non-taxable award has clearly defined criteria, a nomination and evaluation process, and a limited number of recipients.

An award given to your employees for performance-related reasons (such as performing well in the job he or she were hired to do, exceeding production standards, completing a project ahead of schedule or under budget, putting in extra time to complete a project, covering for a sick manager/colleague) is considered a reward and is a taxable benefit for the employee.

There are other things that can be considered a taxable benefit:

  • Social events and hospitality functions.
  • Loyalty and other points programs.
  • Gifts and awards given through prize draws and social committees that are not controlled and funded by the employer.
  • Gifts and awards given where there is no employer/employee relationship, such as awards from a manufacturer or promotional items to employees of a retailer.

You Can Get Non-Cash Gifts That Are Not Taxable

Your employer may give you an unlimited number of non-cash gifts and awards with a combined total value of $500 or less annually. If the fair market value (FMV) of the gifts and awards you are given is greater than $500, the amount over $500 must be included in the employee’s income. For example, if you give gifts and awards with a total value of $650, there is a taxable benefit of $150 ($650-$500).

You will be happy to know that items of small or trivial value will not be considered a taxable benefit. These items are not included when calculating the total value of gifts and awards given in the year for the purpose of the exemption.

Examples of items for small or trivial value include:

  • Coffee or tea;
  • T-shirts with employer’s logos;
  • Mugs;
  • Plaques or trophies.

More than likely the taxable benefit you received has fallen into one of the areas above. If you don’t remember receiving a gift or award, talk to your employer and get them to clarify exactly for what is the taxable benefit.

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