October may be the time of year when we dress up in our favourite superhero costume and go out in search of hidden treats and treasures, but CRA is always out there looking for employee taxable benefits masquerading as incentives, awards, perks, social events, hospitality and more…
Business owners beware! Your well-intentioned programs or rewards may result in increased taxable benefits for your employees. Canada Revenue Agency (CRA) has strict guidelines for cash, near-cash gifts and awards, and rewards of all shapes and sizes. Boo!
Cash and near-cash gifts and awards
Cash and near-cash gifts or awards are always a taxable benefit for the employee. A near-cash item is one that functions as cash, such as a gift certificate or gift card, or an item that can be easily converted to cash, such as gold nuggets, securities, or stocks.
Regardless of the cost, the following gifts and awards are considered a taxable employment benefit:
- cash or near-cash gifts and awards such as Christmas or holiday bonuses or near-cash gifts and awards such as gift certificates;
- points that can be redeemed for air travel or other rewards; or an internal points system where an employee earns points and can redeem them for items from a catalogue;
- reimbursements from an employer to an employee for a gift or an award that the employee selected, paid for and then provided a receipt to the employer for reimbursement;
- hospitality rewards such as employer-provided team building lunches and rewards in the nature of a thank you for doing a good job;
- gifts and awards given by closely held corporations to their shareholders or related persons;
- disguised remuneration such as a gift or award given as a bonus;
- manufacturer-provided gifts or awards given directly by the manufacturer to the employee of a dealer.
Additional information is available at http://www.cra-arc.gc.ca/gifts/
Here’s a little good news:
You may give an employee an unlimited number of non-cash gifts and awards with a combined total value of $500 or less annually. If the fair market value (FMV) of the gifts and awards you give your employee is greater than $500, the amount over $500 must be included in the employee’s income. For example, if you give gifts and awards with a total value of $650, there is a taxable benefit of $150 ($650-$500).
Items of small or trivial value do not have to be included when calculating the total value of gifts and awards given in the year for the purpose of the exemption. Examples of items for small or trivial value include:
- coffee or tea
- T-shirts with employer’s logos
- plaques or trophies
At The Art of Accounting, we pride ourselves on our Payroll prowess, not to mention reliable and accurate Bookkeeping, effective and fun QuickBooks Training, and Custom Reporting & Financial Analysis. Need help managing the details? We’re an easy phone call away. Let’s get started today.