In December we did a post on employee gifts that pertained more towards employee gifts for the holidays. In this post we plan on expanding more into the year round rules on giving employee gifts and awards. We know that this subject can be a little dry, but it is vital that an employer understands these rules before giving gifts to their employees.
Gift – A gift must be for a special occasion, this can include religious holidays, birthdays, weddings, or a child’s birth.
Award – an awardhas to be for an accomplishment of the employee; an example of this includes employee of the year. Usually an award must be exclusive and there may even be a nomination process.
If the award is for a performance related reason it automatically becomes a taxable benefit to the employee. An example of this is giving someone a gift for meeting their sales quota.
The employee is allowed $500 of tax-free gifts and awards every year.
Cash or Cash Equivalent – If you give your employees cash, or something that can easily be converted to cash like a gift card, this is a taxable benefit and must be included in the employees income.
Note that everything taxable is also pensionable and therefore CPP applies. However, EI only applies when the gift was cash or a cash equivalent.
Long Service Awards
An employer is entitled to give their employee a long service award every 5 years of employment. Anything outside of this time-frame is automatically considered a taxable benefit.
Anything over $500 is also a taxable benefit to the employee. The good news is that this does not count towards the employees $500 gift and award allowance.
Social Committee & Events
Social Committee – If the employer pays for the social committee, all gifts and draws through the social committee are deemed eligible towards the $500 gift allowance of the employee. However, if the social committee is funded by employees, either with their own money or through fundraisers, everything given out through the social committee with be non-taxable.
Events – If an employer throws a party or hosts a social event outside of work, the event must be under $150 a person or it becomes a taxable benefit to the employee.
However, if the employer pays for a meal that also corresponds to a work reason, for example networking or an educational lunch, it is not taxable to the employee.
Calculation the $500 Limit
First, we will note that if you give your employees a small gift of little value you do not need to keep track of it. This can include things like a coffee mug, or a company branded hat.
For everything else your payroll professional will need to keep a list of all the gifts and awards that have been given to the employee. Anything over the $500 will need to be added into the employees income.
Wedding Gift – $300 piece of art
Birthday Gift – $100 gift card
Christmas Gift – $250 watch
5 Year Service Award – $600 golf clubs
The $100 gift card automatically needs to go into be added into the employees income as it is a cash equivalent item.
The 5 year service award is a separate item, however it has a value over $500, there $100 would be taxable ($600-$500)
The wedding and christmas gifts are both added together towards the $500 gift limit, $50 would be taxable ($300 + $250 – $500).
Therefore in total, the employee has to take $250 in taxable income for the year.
You can read more about gift giving on the CRA website, here. Or give us a call!