Although there are some scenarios in which gifts or rewards given to employees are not taxable, generally speaking, they are considered a taxable benefit by the CRA, and their value must be added to the employee’s income. For those that are not taxable however, they remain deductible for the employer.
But what’s the difference between a gift and a reward?
Before business owners can sit down with their corporate tax accountant and determine if a benefit is taxable, they must first determine whether what is being given, is a gift or a reward.
- Gift – anything given for an occasion that’s personal, such as a birthday or the birth of a child
- Reward – anything given for a professional achievement, such as for loyalty
It’s also important to make the distinction between recognition, and gifts and rewards: when an employee is given something by their employer in return for achieving a certain level of performance or objective, this cannot be considered as either a gift or a reward, and is always taxable.
What are the taxable benefits of gifts and rewards?
Gifts and rewards given in both cash (such as expenses reimbursements and cash), and in near cash (such as certain gift cards that aren’t defined as non-cash property or prepaid cards), are taxable benefits that don’t qualify for CRA exceptions.
For the CRA, gift cards are considered as property other than cash, like tickets or subscriptions, if they:
- have a monetary value that’s fixed
- are usable at a single merchant
- can’t be exchanged for cash
- are tracked in an employer-kept register
What are the tax-free benefits?
Employers are permitted by the CRA to offer rewards or gifts that are non-monetary of up to $500 a year, including taxes, without it being added to the employee’s income.
It’s worth noting that this limit isn’t applicable to small items considered of negligible value, such as mugs, t-shirts and trophies, as these have their own yearly limit of $500, provided they meet these conditions:
- the employee has completed a minimum of 5 years’ service for the company
- a minimum of 5 years has passed since they last received a similar award
The portion of this limit unused, can’t be applied to gifts and rewards that are non-cash.
Should the total value of the employee’s gifts and rewards exceed the permitted limits, the excess immediately becomes taxable.
An important distinction from Revenu Quebec
When applying tax limits, Revenu Quebec makes a clear distinction between gifts and rewards.
For non-monetary gifts, a $500 (including taxes) annual limit is applicable, while a limit of $500 also applies to rewards of a non-monetary nature; these limits are independent.
But a separate $500 limit for gifts applies, just as it does for rewards, meaning that in provincial taxable income, nothing is included.
Still confused?
Working with professional accounting and payroll services in Langley can help you make better sense of the distinctions and taxable benefits of rewarding your employees, and ensure that whatever you give, you’re always compliant with CRA rules and regulations.
Mistakes are easy to make during tax filing, especially if you’re not clear on the tax rules and implications of giving your employees gifts and rewards. But by seeking expert guidance and working with professionals on a year-round basis, you can keep your employees, and the CRA, happy.
