As we near the final months of the year, discussions of holiday gifts and parties for employees are often the main topics of the season. While an unwanted tax bill may not be in the minds of employers during the holiday, it’s important not to overlook the tax implications of these wonderful perks.
Gifts given to employees are a taxable benefit from employment regardless of the form they take. With that said, the CRA has an administrative policy exempting non-cash gifts in certain cases. To be eligible for this policy, the non-cash gift has to be for a special occasion such as a religious holiday, birthday, wedding or a birth of a child.
Non-cash gifts include tangible items (e.g. a watch, a book, artwork, etc.) and intangible items (e.g. vouchers, event tickets, etc.). To qualify, the voucher or event ticket must not include any “element of choice” (i.e. the voucher is only redeemable for a specific item like a turkey; the ticket is for a set event at a set date and time; in both examples the employee doesn’t get to choose).
Non-cash gifts do not include things that function like cash (e.g. gift cards, gift certificates, etc.) or that can be easily converted into cash (precious metals, marketable securities, etc.)
Non-cash holiday gifts meeting these criteria should not result in a taxable benefit to the employee where:
- The total value of all non-cash gifts and awards1 given to the employee during the year does not exceed $500; or
- The gift is of small or trivial value (e.g. mugs, plaques, t-shirts with the employer’s logo, etc.). Such gifts do not count towards the $500 annual limit.
Gifts that are given in recognition of employee performance, and items won in prize draws at holiday staff parties are not covered by this policy.
Holiday Staff Parties
Many employers hold parties or dinners for their staff during the holiday season. Under CRA policy, attending such an event should not result in a taxable benefit to an employee as long as all employees are invited to the event and the cost of the event does not exceed $150 per person. Note that ancillary costs, such as taxi fares or overnight accommodations for employees attending the event, can not be included in the $150 per person threshold and therefore could result in a taxable benefit.
Generally, the cost of meals and entertainment incurred by a business are only 50% deductible. However, where all staff are invited to the holiday party/dinner and the event is one of six or less such events per calendar year, the cost of the party should be fully deductible to the employer.
 The CRA considers an award to be something given to an employee in recognition of the employee’s overall contribution to the workplace, and not in recognition of the employee’s job performance. Generally, a valid, non-taxable award has clearly defined criteria, a nomination and evaluation process, and a limited number of recipients.
Article written by Tino Chou, CPA