Employee taxable benefits-To gift or not to gift?
Tis the season of gift giving, with the holidays quickly approaching it’s time to think about what to give your employees this year. Let’s start off by quickly reviewing CRA’s rules for gift giving. The general rule is that all gifts given to employees are considered to be taxable benefits, but there are some exceptions. Here is an outline of the rules to make things a little easier:
1) Gifts must be for a special occasion (Religious holiday, birthday, wedding, etc.)
2) Remember that these rules do not apply to gifts given to non-arm’s length employees (Relatives, shareholders, board members, or people related to them)
3) To determine the value of the gift you must use Fair Market Value (FMV) , and not its cost to you. Make sure to include the value of the GST/HST in the FMV.
4) If the gift is paid in cash it is insurable and payroll deductions must be made. If the taxable gift is a non-cash benefit it is not EI insurable but it maybe taxable.
Let’s talk types of gifts. There are two options:
1) Cash and near cash gift certificates and/or stocks as they are easily converted into cash and are always taxable.
2) Non-cash gifts vouchers, event tickets, products, and things that cannot be easily converted into cash may or may not be taxable.
The following are exemptions to the taxable benefit rules:
1) If the employee has received less then $500 in FMV of non- cash gifts in the year
2) Employer-provided parties or social events where the cost is $150 per person or less
3) Valueless items (coffee/tea, snacks, mugs, t-shirts etc.).
4) Event tickets with a specific date and time.
There is no limit to how many gifts an employee can receive during a year. The restriction is only limited to the total cash value of all the gifts. Remember that small gifts such as mugs or plaques do not count toward the $500 limit.
Once you have decided what gift to give your employees, the next important thing is reporting the benefit to make things easy come tax time. Make sure to include the description, name of the event or holiday, the value according to FMV including HST , and whether or not it is taxable. The best way to record this is in a chart. For Example:
|Gift||Occasion||Value (VMF) Including HST||Taxable?|
|Gift Certificate||Birthday||$75||Yes- Cash taxable benefit|
|T-Shirt with company logo||Work Event||$15||No-Non-Cash item of nominal value|
|Weekend Holiday||Wedding Gift||$400||Yes- Non-Cash taxable benefit|
Total Amount Spent:
Total Taxable Amount:
Now time for the fun part, putting these rules to work! Hopefully this makes your holiday gift giving a little bit easier this season. Please note that we have not included any of the rules regarding awards . If you have any additional questions don’t hesitate to reach out to Pam Little CPA.