If I give a gift to an employee, is that taxable?

By Randall Orser | Personal Income Tax

Shopping cart with giftsYour employees are doing a great job, and you want to reward them with some kind of gift. However, you wonder if anything you give them will have to be considered income, and you are probably right. It’s pretty sad really that the government has to get its dirty paws on everything we earn.

A gift has to be for a special occasion, such as a religious holiday, birthday, anniversary (marriage or day started as an employee, wedding or birth of a child.  You may also give awards (employment-related accomplishments), such as for outstanding service, employees’ suggestions, or meeting or exceeding safety standards. Don’t confuse this with a reward, such as performing well in the job or exceeding production standards; these are performance related reasons. You can give an employee a gift, award or reward, and you can give it to them in either cash or non-cash, however, it’s still a taxable benefit.

This also means that as it’s a taxable benefit, Canada Pension Plan (CPP) and Employment Insurance (EI) may also apply to the gift, award or reward. If it’s a taxable benefit, it is also pensionable, so CPP applies. For EI, if the taxable benefit is paid in cash, then it’s insurable and EI applies. If the benefit is non-cash, it is not insurable, and EI does not apply. Remember, tax applies all taxable benefits.

You may be thinking, what about gift cards? Sorry, gift cards are considered an equivalent to cash, and, as such, are a taxable benefit to the employee. This also applies to items that are not cash, but cash be converted into cash, such as securities or precious metals.

There is hope though. You can give non-cash gifts and awards with a combined total of $500 annually. The fair market value of the goods must not exceed $500, and if they do, then the difference is considered a taxable benefit. For example, you bought an employee a couple of gifts over the year and the total was $750. In this case, the difference of $250 ($750 – $500) would be added to their income and taxed accordingly.  You can also give gifts or awards for long-term service every five years, so at the 5, 10, 15 etc. years of service marks, and up to $500.

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.

You may be thinking, well why don’t I just throw them a party. That won’t be taxable, right? Well, maybe. If the social function costs less than $100 per person, then it won’t be taxable. However, if you cover the cost of transportation home (taxi fare or other transportation) or accommodation this must be included in the $100 per person. If the total exceeds $100 per person, then the entire amount is a taxable benefit. For example, you throw a huge party for staff and the cost comes to $125 per person, then you must add to each employee $125.

If you want to do something for your employees on birthdays or anniversaries, then start a social committee. The social committee would be set up by, contributed to, and controlled by the employees. They could put so much per week into a fund that would then go to pay for cake, gifts, etc. for the birthday person. The employer should not contribute any funds to this social committee, as then it becomes a taxable benefit for the portion that the employer contributes. Now, you, as the employer, could have some say in when, where, etc. the party takes place, you just can’t contribute any monies towards it.

Sadly, in this day and age of taxing us to death, you need to check that what you’re giving your employees won’t become taxable to them. It’s always advisable to check with your bookkeeper, accountant, or even Canada Revenue Agency, before you give anything to an employee.

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