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Canadian tax implications for employee gifts

The lowdown on the Canada Revenue Agency's rules for gifts and rewards

by John Schofield

We’ve all been warned about gift horses. But while you may not check their dental work, your accountant will thank you to consider the tax implications. There’s a quick rule of thumb: employers can give their employees an unlimited number of non-cash gifts and awards annually with a combined total value of $500 per employee. If the combined value of gifts and awards given is greater than $500, only the amount over $500 is taxable. There are exceptions (see chart).

But when it comes to gifts and rewards, sorting out the tax maze can pay big dividends, says Winnipeg-based Evelyn Jacks, author of Make Sure It’s Deductible and president of the Knowledge Bureau, which trains tax and financial advisers. “Understand the variety of ways to remunerate on a taxable and tax-free basis,” she recommends. “When you remunerate by covering important costs, such as access to a car or athletic club memberships, the employee wins because more of his or her after-tax dollars are available for investing rather than spending.”

GIFT AND AWARD VALUE TAXABLE?
Birthday gift
(gift certificate)
$75 YES A gift certificate is like cash, and therefore not included under the gifts and awards policy.
T-shirt with employer logo $15
(cost)
NO Non-cash item of nominal value, further reduced by the company logo.
Reward for meeting sales performance target
(weekend holiday)
$400 YES Meeting a performance target does not fall under the definition of an award; therefore it does not fall under
the gifts and awards policy. CRA considers it to be additional remuneration.
Social Committee 50/50 draw—
Employer does not fund or control the social committee
$243 NO The gifts and awards policy applies to employer/employee relationships.
An award (a watch) for three years service $200 YES Since the employee has worked for the company for less than 5 years, this long service award does not meet the parameters of the policy and is taxable.
Innovation and Excellence Award
(tickets to a sporting event)
$250   An award under the CRA policy.

 Chart courtesy of Canada Revenue Agency cra-arc.gc.ca (search gifts and awards)

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