Many employers may be planning to give gifts or awards in 2024 to their employees. But what are the tax implications?
Gifts, awards, and long service awards are taxable benefits because they are another form of compensation.
However, the Canada Revenue Agency’s (“CRA’s”) updated administrative policy regarding gifts and awards states that, in most cases, non-cash gifts and awards are not considered to be taxable benefits, unless the total fair market value of those gifts or awards given to an employee in a year exceeds $500. In this case, the amount exceeding $500 will be a taxable benefit to that employee.
Tax-Free Gifts and Awards
Many employers are eager to provide extras for their employees, especially in this difficult labour market. However, improperly structured extras may create unintended tax consequences for the employee. It’s always best to speak with a qualified tax professional before giving gifts or awards.
The CRA allows companies to give non-cash gifts or awards to their employees so long as the total of all these gifts or awards to an employee is less than $500 in any year.
To qualify, the gifts should, however, be for a special occasion such as a religious holiday, birthday, wedding, etc. For awards to qualify, they should be in recognition of the employee’s overall contribution to the workplace, and not as a reward for the employee’s job performance in which case they become taxable.
In calculating whether the $500 limit is exceeded for non-cash gifts or awards, according to CRA’s updated administrative policy “small items or items of trivial value such as coffee or tea, T-shirts, mugs, plaques and trophies” are not included in the calculation.
Any non-cash gift or award over this limit is taxable for the employee and must be included on their T4. For the employer, these amounts are subject to deductions for income tax and CPP.
Cash gifts or awards or near cash gifts or awards are taxable. Near cash gifts or awards are those things that are easily converted into cash such as bonds, securities, precious metals/jewels, or prepaid credit cards issued by financial institutions. Near cash no longer includes gift cards provided they meet certain requirements.
As with all tax matters, it’s important to consult a qualified tax and/or accounting professional. A qualified professional can help you avoid unnecessary taxation of your gifting initiatives. In addition, he/she will help you maximise the impact of your generous gifts.
Long Service Awards
Long service awards have their own $500 limit. Under the updated CRA’s administrative policy, long service awards will not be considered taxable benefits provided they meet the following four conditions:
- 1) It is a non-cash gift or award (including gift cards that meet certain requirements).
- 2) It recognizes five years or more of service with the employer.
- 3) It has been at least five years since the last long service award was given to that employee; and
- 4) The fair market value of the award does not exceed $500.