10 Dec Are Employee Gifts and Awards Taxable Benefits?
At Clearline, we are often asked “What is the best way to reward employees?”
Generally, all gifts and awards given to employees are considered to be taxable benefits by the CRA. The monetary value of the gifts and awards must be added to the employee’s employment income and included on the T4 slip. There are certain exceptions whereby the gift or award is not considered a taxable benefit. These exceptions are as follows:
- Employees may receive up to $500 in fair market value of non-cash gifts or awards in a year.
- Employees may receive non-cash awards in recognition of long service valued at less than $500 once every five years. This amount is considered to be separate from the annual gift amount in #1 above. An employee could receive up to $1,000 worth of non-cash gifts in the same year ($500 for annual gifts and $500 for the fifth anniversary).
- Employer-provided parties or social events to all employees where the cost is $150 per person or less.
- Meals or other hospitality services at work-related functions, such as networking or training sessions.
- Small items of trivial value such as coffee, tea, snacks, mugs, t-shirts, hats, etc.
Anything more than the $500 limit amount is considered to be a taxable benefit. Employers have to withhold and remit source deductions on taxable benefits.
There is no limit on how many gifts an employee can receive during any given year. The only limit is the total cash value of all the gifts. Small gifts of coffee, tea, chocolates, etc., are not included in the $500 limit.
Regardless of the cost, the following gifts and awards are considered a taxable employment benefit:
- Cash or near-cash rewards such as gift cards/certificates, precious metals, securities, etc.
- Gifts and awards given by closely held corporations to shareholders or related persons.
- Rewards that involve employer-provided meals or accommodation. For example, as a bonus, the employee and their family is given an all-expense paid trip to the Caribbean.
- Cash or non-cash awards from manufacturers given to dealers, that are then passed on to employees.
- Points collected on credit cards that are converted to cash.
It is also important to be sure employee gifts are being given for the right reason. The CRA provides the following definitions:
- Gift – given for a special occasion such as a religious holiday, a birthday, a wedding, or the birth of a child.
- Award – given for an employment-related accomplishment such as outstanding service, employees’ suggestions, or exceeding safety standards. Note that performance-related rewards do not fall under this category and are taxable benefits.
For more information, check out this link: CRA Gifts, Awards and Social Events
If you have questions about gifts and awards provided to employees, please reach out. We’d be happy to help.