‘Tis the Season for Giving… But Don’t Forget the Tax Implications!

If you are one of the many employers who are planning on showing your appreciation to your employees with a gift this holiday season, this blog post may be for you.

While this is a generous gesture, it’s important to remember that these gifts may have tax implications for both the employer and the employee.

As an employee, almost anything you receive from your employer is considered a taxable benefit. This includes:

• Cash gifts and bonuses: These are always taxable and should be included in your income.
• Gift cards: The value of the gift card is considered taxable income.
• Gifts in kind: The fair market value of any non-cash gift (e.g., electronics, merchandise) is also taxable.
• Holiday parties: While the CRA generally doesn’t tax the cost of a traditional holiday party, excessive costs or gifts given at the party could be considered a taxable benefit.

Exceptions to the rule:

There are a few exceptions to this rule. According to the CRA, certain non-cash gifts may be considered non-taxable if they meet all of the following conditions:

• The gift is for a special occasion (e.g., religious holiday, birthday, etc.) or a recognition award for the employee’s overall contributions to the workplace.
• It is not provided as rewards you provide to your employees related to the employee’s job performance
• The gift is not cash or a cash equivalent (e.g., a gift card that can be converted to cash).
• The total value of all non-cash gifts received from the employer in the year is less than $500.

If the total non-cash gifts and awards are more than $500, the amount over $500 is taxable.  Long service awards have their own $500 limit (please note there are additional rules around long-service awards not mentioned here).

What does this mean for employers?

Employers need to keep accurate records of all gifts and bonuses given to employees. The value of taxable benefits needs to be included on the employee’s T4 slip, and the appropriate payroll deductions (income tax, CPP, and EI) must be considered (note EI does not apply in situations relating to non-cash or near-cash amounts).

Want to learn more?

Navigating the world of taxable benefits can be tricky. If you have questions about the tax implications of employee gifts or any other year-end tax matters, don’t hesitate to contact us. Our team of experienced accountants is here to help ensure you are following CRA guidelines and maximizing your tax benefits.

In the spirit of this, Happy Holidays from all of us here at BalancedAccounting.ca / CMD CPA Professional Corporation!