Gifts and awards
Under the Income Tax Act, any gift or award given to an employee is a taxable benefit, whether it is cash, near-cash or non-cash. If a non-cash gift or award is given, the fair market value of the gift or award must be included in the employee’s income. CPP contributions will also need to be deducted from the benefit. If the taxable benefit is paid in cash, EI deductions will also need to be taken. However, non-cash and near-cash benefits are not insurable, so no EI will need to be deducted. CRA has adopted an administrative policy to provide certain exceptions to the rule.
Effective January 1, 2011, an unlimited number of non-cash gifts and awards may be given tax-free during the year to an arm’s length employee to a maximum of $500 in total value. In addition to the $500 gifts and awards limit, long service awards up to $500 can be given to employees with at least five years of service. Any amounts over and above the $500 gifts and awards limit and $500 long service award limit are taxable and must have CPP deducted, but no EI.
Gifts must be for special occasions such as religious holidays, a birthday, a wedding, or the birth of a child.
CRA differentiates between awards and rewards. Awards must be for employment-related accomplishments such as outstanding service, employees’ suggestions, or meeting or exceeding safety standards. Rewards for performance-related reasons such as performing well in their job, exceeding production standards, completing a project ahead of schedule or under budget, putting in extra time to complete a project, or covering for a sick manager/colleague are not included and are considered a taxable benefit.
Note: Any gifts or awards given to non-arm’s length employees are not exempted under the Administrative Policy and are considered taxable benefits.
An employer-provided party or other social event that is available to all employees will not result in a taxable benefit as long as the cost per employee is not more than $100. If the cost of the event, including ancillary charges such as transportation costs, is more than $100 per person, the entire amount is a taxable benefit.
Generally, no taxable benefit will result where an employer provides a home computer to an employee where it can be shown that the computer primarily benefits the employer and the provision of such computers is available to all employees or classes of employees.