Generally, gifts and awards given by employers to their employees are taxable. The Canada Revenue Agency’s (CRA) administrative policies identify conditions under which some of these benefits may not be taxable.
The CRA has recently updated its administrative policy (effective for 2022 and subsequent years) on when gifts, awards, and long-service awards provided by employers to their employees, will not be considered taxable benefits. Taxation will depend on the nature and amount of the gift.
Cash or “near-cash” gifts and awards
Cash or near-cash gifts or awards are taxable. This includes employer-reimbursed items as well as items that can easily be converted to cash, most gift cards (see below), prepaid credit cards issued by financial institutions and digital currencies (e.g. Bitcoin).
Gift cards (including gift certificates, chip cards and electronic gift cards) will be considered “near-cash” gifts unless the following apply (in which case the gift card will be considered non-cash):
- the card comes with money already on it and it can only be used to purchase goods or services from a single retailer or group or retailers identified on the card; and
- a log is kept containing the following information: name of the employee, date the gift card was provided to the employee, reason the gift card was provided to the employee, type of gift card, amount of the gift card and name of retailer(s).
Non-cash gifts and awards
Under the CRA’s administrative policy, a non-cash gift or award is not taxable if it meets the following criteria:
- the aggregate fair market value of all non-cash gifts or awards provided by the employer to the employee in the year is of $500 or less (including taxes);
- in the case of a gift, the gift was for a special occasion;
- in the case of a recognition award , it was for the employee’s overall contributions to the workplace; and,
- the gift or award was not related to the employee’s job performance.
If the $500 limit for non-cash gifts and awards is exceeded, the excess amount is taxable.
Long-service awards have their own $500 limit. Non-cash long service awards will not be taxable if the fair market value of the award is of $500 or less (including taxes), it is not a gift card and it was given in recognition of five or more years of service with the employer (provided it has been at least five years since the last time the employer gave the employee a long service award).
Small items or items of a trivial value (i.e., coffee, shirts, and plaques) are excluded and employees can also elect to donate their non-taxable award to charity without tax consequences.
Non-cash gifts and awards will be taxable in the following situations:
- they are related to the employee’s job performance (e.g. meeting or exceeding sales targets, or the completion of a project);
- they are provided to non-arm’s length employees (e.g. shareholders and their family members);
- they are provided through prize draws (where only employees can participate) or employer funded social committees;
- they represent benefits from redeemed loyalty and other points programs; or
- they are social events and hospitality functions (unless they are available to all employees, cost $150 or less (including taxes) per person, and are within the maximum annual limit of six employer-paid social events).
Where an employee receives a gift directly from a customer or supplier of the employer, the tax reporting is the obligation of the customer or supplier, not the employer.
Obligations to withhold and remit
Where a taxable cash gift or award is provided to an employee, the employer must withhold deductions for income tax, CPP and EI. The employer will also have to remit GST/HST on reimbursements (but not allowances).
Where a taxable near-cash or non-cash gift or award is provided to an employee, the employer must withhold deductions for income tax and CPP. The employer will also have to remit GST/HST.
For more information, see the Government of Canada’s website.