Whether it’s a staff holiday party, birthday celebration or just a year end gift, there are rules surrounding giving your employees gifts. Follow the rules, and both you and your employees will benefit on your tax return. Gifts that follow the guidelines set out by the Canada Revenue Agency (CRA) are not only tax deductible for you as the employer, but your employees won’t have to declare the cost of the gift as part of their taxable income. Don’t get dinged at tax time just because you were trying to recognize your employees. Read on to learn about the tax rules for employee gifts.
Tax Implications of Gift Giving in Canada
The CRA’s general rule is that all gifts given to employees are considered a taxable benefit. However, there are a few exceptions to this rule that will make the gift not taxable. These exemptions include:
- Employees may receive up to $500 in non-cash gifts each year before the gift becomes taxable.
- Employer-hosted social events where the cost is $100/per person or less.
- Gifts in recognition of long service can be given once every five years and are not taxable so long as the value is less than $500.
- Meals at work-related functions.
- Small, valueless items such as coffee, snacks, mugs, etc.
The number of non-cash gifts an employee can receive is unlimited as long as the combined total value doesn’t exceed $500 annually. More so, small gifts, such as coffee, plaques, and mugs don’t count towards this limit.
When Does A Gift Become A Taxable Benefit?
There are some gifts that, regardless of the cost, are always considered a taxable benefit. These include:
- Non-cash gifts that exceed the $500 annual limit. Ex. If you gift your employee a total of $700 in non-cash gifts, $200 of that is considered a taxable benefit.
- Cash or near-cash gifts. This includes bonuses and gift cards.
- Reward points that are redeemable towards travel, accommodation, or other rewards.
- Reimbursing an employee for a gift they selected and paid for.
- Any sort of gift from a manufacturer given to an employee of a dealer.
Chat With A Tax Professional
The business tax landscape can be extremely difficult to navigate alone. A qualified business accountant can help ensure that everyone in your company gets to experience the joy that is associated with the giving and receiving of gifts. If you have questions about employee gift giving, call the team at Liu & Associates today.