Christmas and New Year are our next big events and Companies tend to be generous with their employees with regards to gifts and awards. Your company might be like Santa but will CRA be? What are the tax implications you should be aware of when it comes to gifts, awards and expenses on Christmas/End of year parties?
Cash and/or near-cash has the same meaning Eg. $100 note v/s $100 gift card V/s $100 gift certificate
Non-cash: An ipad worth $300, this is a non-cash item
A gift has to be for a special occasion; E.g. birthday, wedding, birth of child, religious holiday etc.
An award has to be an employment related accomplishment E.g. outstanding service, employees’ suggestions, or meeting or exceeding safety standards
A reward has to do with performance-related reasons. E.g performing well in the job that he/she was hired to do.
- Gifts and awards to employees from the employer are considered employment income and are taxable.
- Cash or near cash gifts are all taxable
- Rewards are taxable
However, CRA has an administrative policy that exempts certain gifts and awards.
- The first $500 including GST/HST/PST of a combination of non-cash gifts and non-cash awards in the year is tax free
- The first $500 value of non-cash long-service or anniversary award (minimum of 5 years of service) is tax free too. Note that time interval should be at least 5 years from the last award.
– Gifts and awards to Spouse / Children
Gifts and awards to non-arm length employees do not meet the exemption criteria. They are subject to taxes on their full value
– Social event (E.g. Christmas or end of year party)
If your company is having a free party or social event provided to all employees, the benefit to the employees are not taxable provided the total cost per person is not more than $100. This cost does not include transportation, taxi fare or overnight accommodation. However if the total cost per person is more than $100, then the entire amount including the cost of transportation/taxi/accommodation is a taxable amount.
Below are excerpts from the newspaper “The Bottom Line” dated September 2013 with regards to questions and answers from CRA about Gifts and Awards
Question: We present our top performers of our sales team with quarterly non-cash gifts worth no more than $500. Are these taxable benefits?
Answer: This gifts and awards policy defined a gift as recognition of a personal event or milestone in an employee’s life, such as a birthday, marriage, retirement, or the birth or adoption of a child, or ass recognition of a public or a religious holiday where gifts are traditionally exchanged, such as Christmas or Hanukkah. The “gifts” described here are provided in recognition of the performance by the top sales people and are, in fact, performance-based rewards. When an employee is recognized for having performance well in the job that he or she hired to do, any item given, whether cash, near-cash, or non-cash is taxable benefits. This gifts and award policy does not apply. (If the able gift and award is non-cash, the fair market value is subject to CPP and income tax. Taxable gifts and awards are reported in boxes 14 and 40 of the T4 slip.)
Question: Can we give gift card from a particular store as birthday/wedding gifts or long service award to our employees without triggering a taxable benefit?
Answer: The gifts and awards policy only apply to non-cash items. Cash and near-cash items such as gift cards and gift certificates, are not included in the policy and are always taxable, regardless of the reason they are given. Gifts card certificates are near-cash items because they function as cash. The bearer of a gift card spends it in the designated store in the same way he or she would spend cash there.
Question: Can the $ 500 gifts and award maximum be used against taxable parking or employer-provided transportation?
Answer: The gifts and awards policy cannot be used to make otherwise taxable benefits non-taxable. The CRA considered this to be disguised remuneration, which is specifically prohibited by the gift and award policy.
Question: If an employee wins a non-cash door prize at their company’s holiday party, is the prize considered a taxable benefits if it is valued at no more than $500? What if the social committee organized and presented the prize?
Answer: Prize draw or lotteries are not included in the gifts and awards policy. Generally, where all, or a majority, of participants in an employer-promoted contest are employees and their family members, any winnings are considered a taxable employment benefits. Whether winning from a prize draw held by a social committee is a taxable benefits depends on whether the social committee is funded or controlled by the employer. If an employer provides otherwise taxable benefits through a social committee in order to make them non-taxable, the CRA considers it to be disguised remuneration.
Have you “liked” it? If not yet, please do so.
Please visit my website www.plbcga.ca for my disclaimer.