A gift or award that you give an employee is considered to be a taxable benefit from employment, whether it is cash, near-cash, or non-cash. However, under our policy, a non-cash gift or award that you give an employee may not be considered a taxable benefit under certain circumstances.
The policy allows you to give each employee up to two non-cash gifts per year, tax free, for a special occasion such as Christmas, Hanukkah, a birthday, a wedding, or the birth of a child.
It also allows you to give each employee up to two non-cash awards per year, tax free. An award is given for an employment-related accomplishment such as long or outstanding service, employees' suggestions, meeting or exceeding safety standards.
The policy limits the cost of the gifts to $500, including taxes, and the cost of the awards to $500, including taxes. If one non-cash gift costs you more than $500, you have to include the fair market value of the gift in the employee's income. As well, if one non-cash award costs you more than $500, you have to include the full fair market value of the award in the employee's income.
If you give more than one non-cash gift per year and the total cost is more than $500, we allow you to exclude the cost of up to two gifts from the employee's income, as long as the total cost of the excluded gift or gifts is not more than $500. You have to include the fair market value of the remaining gift(s) in the employee's income. The same limits apply for non-cash awards given to an employee.
If you give more than one non-cash gift per year and the total cost is $500 or less, we allow you to exclude the cost of any two of the gifts from the employee's income. You have to include the fair market value of the remaining gift(s) in the employee's income. The same limits apply for non-cash awards given to an employee.
This policy does not apply to cash or near-cash gifts or awards. A near-cash item could be a gift certificate, gold nuggets, securities, stocks, or any other item that can be easily converted to cash.
If the benefit is all in cash, do not include GST/HST. However, if all or part of the taxable benefit is non-cash, and it is not for an exempt or zero-rated supply, include GST/HST in the value of that part of the benefit.
For more information, visit www.cra.gc.ca/gifts, where you can find examples and questions and answers.
Payroll deductions
Where the benefit is taxable, it is also pensionable. Deduct CPP contributions and income tax.
If the taxable benefit is paid in cash, it is insurable. Deduct EI premiums. If it is a non-cash benefit, it is not insurable-do not deduct EI premiums.
Awards from a manufacturer
If a manufacturer of items or goods gives cash awards or non-cash awards to the dealer of the items or goods, the manufacturer does not have to report the awards on an information slip. However, if the dealer passes on cash awards to an employee, the dealer has to report the cash payment in box 14 and under code 40 on the employee's T4 slip. If the dealer passes on non-cash awards to an employee, the above-noted policy will apply.
If a manufacturer gives a cash award or a non-cash award directly to the employee of a dealer or other sales organization, the manufacturer has to report the value of the award as a benefit in box 28, "Other income," on a T4A slip.
Social events
If you provide a free party or other social event to all your employees and the cost is not more than $100 per person, we do not consider it to be a taxable benefit. Ancillary costs such as transportation home, taxi fare, and overnight accommodation would increase the $100 per person amount. If the cost of the party is greater than $100, the entire amount, including the ancillary cost, is a taxable benefit.
If the benefit is all cash, do not include GST/HST in it. However, if all or part of the taxable benefit is non-cash and is not an exempt or zero-rated supply, include GST/HST in the value of that part of the benefit.
For more information, see our Technical News No. 15 and Interpretation Bulletin IT-470, Employees' Fringe Benefits, and its Special Release.
