An Employer’s Guide to Giving Gifts to Their Employees

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Giving Gifts to Employees: Here’s What You Should Know    It’s nice to be recognized for your hard work. Business owners know this, and that’s why it’s a common practice to give gifts to their employees. It boosts company morale by letting your employees know they are appreciated.   But gifts from an employer have certain taxation rules that apply, which is why it’s important to understand these rules to avoid any unnecessary trouble.   Let’s dive into everything you should know about giving gifts to your employees.     What Constitutes Gifts, Awards, and Rewards to Employees   While these might sound like the same thing, the Canada Revenue Agency (CRA) has distinct definitions of each of these types of presents.  
  1. Gifts: These are given on special occasions such as religious holidays, birthdays, weddings, or the birth of a child.
  1. Awards: These are given based on an employee’s accomplishment, specifically related to the overall workplace.
  1. Rewards: These are given for any reason other than those listed for gifts and awards, such as those relating to job performance.
  Further to this, there are three categories that a gift, award, or reward from an employer may fall into.  
  1. Cash:
  1. Currency or its equivalent
  2. Cheques
  1. Near-Cash:
  1. Gift cards/certificates
  2. Bonds
  3. Precious metals
  4. Digital currency
  1. Non-Cash Gifts:
  1. Anything that is not cash nor near-cash, such as tickets to a hockey game
  You can see how a gift to an employee isn’t as simple as it might sound. And with different tax rules around each type, it’s easy to get confused. But we’ll clear up the rules next to make it easier.     When Are Gifts Taxable?   Now that we understand the types of gifts that employees receive, we can get into how the taxes work.   Because presents come from an employer, employee gifts can be taxed as part of their regular income. But this doesn’t happen in all scenarios.   The CRA outlines criteria for non-taxable gifts. In order for a present to not be taxed as part of the employee’s income, the present must:  
  • Be a non-cash gift, and/or an award
  • Not exceed a combined value of $500 (can be an unlimited number of non-cash gifts and awards)
  • Note that this does not include small items of trivial value such as coffee mugs
  • Nor does it include service awards for employees
  • Be a gift (given for a special occasion) or an award (for recognition of overall workplace contribution)
  • Not be a reward
  If any one of these criteria is not met, then the present is taxable as income. We’ll show some examples next to help clear up any confusion.   Examples of Taxable vs. Non-taxable Gift Scenarios    It can be a bit tricky to put the above rules into practice, so here are some scenarios to give you a better idea of how this all works:   Let’s say an employee just got married, and their employer gives them a dishware set and some new towels. The combined total is valued at $150. This would not be taxed because it is less than $500, and it was given for a special occasion.   Now, consider an employee with a great sales month and their employer shows their appreciation in the form of a $400 cheque. Even though the value is less than $500, this still counts as taxable income because the cheque is a reward and it is given as cash.   The good news is that you can show your appreciation to your employees through gifts and awards, but you do need to understand the rules around the tax component in order to stay compliant with the CRA (and also gift your employee with something that doesn’t come back to bite them).     How Professional Accountants Can Help with Employer Gifts   Accountants are your taxation experts. They understand the ins and outs of the CRA; it’s their job to keep track of those rules and regulations.   If you’d like further help understanding how employer-given gifts are taxed, we can help. Contact us today and get the expertise you need.