When is a gift not a gift? Updates to the CRA’s policies on employee gifts and awards
At this time of the year, you’ll likely be racking your brain for the perfect gifts to spoil those close to you, who may or may not be your employees. Unfortunately, as with everything you buy, the CRA is thinking about your gifting as well.
The CRA has revised some of their policies on gifts and awards to employees that you should know about. Clarification is given on the taxability of ‘near-cash’ and ‘non-cash’ gifts, including a notable change for gift cards. Let’s look at what’s new and what you should keep in mind to avoid accidentally gifting tax to your employees this year.
Cash and near-cash
Cash and near-cash gifts and awards are always taxable. As you’d assume, “cash” includes both currency and cheques; however, reimbursements, where the employee provides a receipt in exchange for cash, also fit into this definition.
Reimbursements in this case do not include clearly business-related purchases which the employee purchased with their own funds and received reimbursement. Instead, it refers to situations where you may instruct an employee to purchase something for themselves as a gift and reimburse them afterwards.
Near-cash includes digital or crypto currencies and related items, along with prepaid debit or credit cards. Gift cards are also included in this category, unless they meet certain conditions which are described below.
Non-cash gifts and awards are only taxable on the amount in the year that is in excess of $500. Some common examples of gifts and awards which may be considered non-cash are:
- Gifts for special occasions (i.e. a birthday, religious holiday, marriage or birth of a child)
- Recognition awards for overall contributions to the workplace (but not related to their job performance)
- Vouchers and event tickets without an element of choice (e.g. concert tickets or voucher for a specific product from a specific store)
Trivial items such as coffee mugs, t-shirts, etc. do not need to be included in the $500 annual limit. Long service awards are also not included (there are separate rules for these, which can be found on the CRA website)
Gift cards—which include gift certificates, chip cards and electronic gift cards—are also considered non-cash awards only if:
- They come with money already loaded and can only be used to purchase goods or services from a single retailer or a group of retailers identified on the card;
- The terms and conditions of the gift card(s) clearly state that funds loaded to the card cannot be converted into cash; and,
- A log is kept of gift cards given that includes:
- The name of the employee;
- The date the card was provided;
- The reason for providing the card;
- The type of card;
- The amount loaded on the card; and,
- The name of the retailer(s)
Cash awards should have income tax, CPP and EI withheld and remitted. GST on taxable reimbursements should also be remitted. Taxable non-cash and near cash benefits should have income tax and CPP withheld. GST on the taxable benefit should also be remitted.
Visit the CRA website for more information on the gift and awards policy.
If you’re finding it tough to figure out what to gift your staff this holiday season… well we can’t quite help you with that (we’re not elves, after all). But if you’ve got a few ideas in mind for some tokens of appreciation, your DMCL advisor will be happy to offer some clarification on which taxes might apply so you can avoid giving the gift of tax—which, let’s face it, is probably worse than a lump of coal.
Article written by Edwin Yeung, CPA, CGA, TEP