As a kindly employer, from time to time, you may want to give an employee a gift or reward. The CRA has rules for this.
First you need to have some definitions.
Gift – This must be for a specific occasion. Examples would be for a birthday, wedding, or religious holiday.
Award – This is recognition for a significant achievement. That can be something like exceeding standards, not just model performance. It is usually limited to only a few people and often is through a nominating process.
Reward – If it is given for performance related activities, like coming in under budget or ahead of schedule or just doing what they were hired to do but doing it exceptionally well, this is considered a reward and it taxable income.
Cash – This is fairly obvious. It is extra money.
Near-Cash – This is something like a gift card or stock. It is something that can be used like money or converted to cash.
Non-Cash – This can be something of a small value like a coffee mug or t-shirt. It can also be something like a grocery store voucher. Instead of giving your employee a turkey or ham, you give them a store voucher to a specific store and that voucher is exchanged for just the product listed without a substitute and without change if the product costs less than the voucher value. It can also be tickets to a specific event, like a baseball game played only on that date.
Taxation
If the gift is cash, it is taxable. Therefore, it needs the appropriate deductions like CCP, income tax and EI benefits. Non cash and near cash items are not subject to EI deductions
As the employer, you may give your employee an unlimited number of non-cash items as long as they do not exceed a total value of $500 per year. This does not include items like mugs, plaques, etc. If the awards amount to $650 over the year, there is a tax due. To calculate the value you need to include GST/HST and PST to determine the fair market value.
Length of Service Awards
You can reward your employees for their service to the company every five years on the anniversary of their employment. So, the employee must have worked for you at least five years and then it needs to be at least five years since the last award. These can be up to $500 non-cash and are tax free. This service award can be in addition to other awards you have given through the year. However, if the non-cash value of the service award is less than the $500 maximum, you are not allowed to make up the difference in the other $500 non-cash awards available through the year.
As you can tell, there are a lot of details and intricacies in rewarding your employees. It is advisable to review all the CRA rules and regulations and possibly consult with a human resources representative or your accountant.
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- The Capex Team